i i ii CONTENTS

Board Members ...... 2

The Winning Soccer Team ...... 4

GCEO Message ...... 14

Mission Statement ...... 16

Awards ...... 18

Route and Frequencey ...... 20

Mega Infrastructure developments ...... 22

Technology ...... 38

Graduation ...... 40

Financial Report ...... 42

Route Maps ...... 92

iii iii GLOBAL CONNECTOR OF PEOPLE AND GOODS WITH AWARD WINNING SERVICES

iv GLOBAL CONNECTOR OF PEOPLE AND GOODS WITH AWARD WINNING SERVICES

1 1 BOARD MEMBERS

2 Ato Abadula Gemeda Board Chairman

Dr. Arkebe Oqubay Board V/Chairman

Dr. Aklilu Hailemichael W/o Dagmawit Moges Gen. Adem Mohammed Board Member Board Member Board Member

Ambassador Berhanu Ato Teklewold Atnafu Tsegaye Board Member Board Member

Ato Tadesse Tilahun Board Member

3 3 THE WINNING SOCCER TEAM (WST)

4 Tewolde GebreMariam was appointed as Group Chief Executive Officer of Ethiopian Airlines in January 2011. He began his career at Ethiopian in 1985 as Transportation Agent and held a number of senior leadership positions in different divisions in the Airline including Ethiopian Cargo, Area Offices and Sales & Marketing. In his role as CEO, Mr. Tewolde has been a multiple award winner including ‘African CEO of the Year’, ‘Best African Business Leader’, ‘The Airline Strategy Award for Regional Leadership’ and ‘The Most Gender Focused CEO Award’. Mr. Tewolde also serves as a member of the High-Level Advisory Group on Sustainable Transport with United Nations, Chief Executive Board member of Star Alliance, Board member of International Air Transport Association (IATA) and Airlink Advisory Council. Additionally, he is an Executive Committee member of the African Airlines Association (AFRAA), a member of Board of Directors of Africa Travel Association (ATA) and Board of Directors of Ethiopian Tourism Organization (ETO). Mr. Tewolde graduated from Addis Ababa University with B.A. Degree in Economics. He earned his Master’s Degree in Business Administration from Open University in the United Kingdom. Mr. Tewolde GebreMariam Group Chief Executive Officer

5 5 COO Mr. Mesfin joined Ethiopian in 1984 as Associate Engineer and progressed through the ladder and served in supervisorial and managerial positions in the technical areas. In 1997 and 1999, he was appointed as Director Operations & Technical Systems Support and Chief Information Officers respectively. In 2006, he was assigned as Vice President Maintenance and Engineering. Currently, he is serving Ethiopian as Chief Operating Officer since November 01, 2010. He holds BSC and MSC Degree in Electrical Engineering from Addis Ababa University. He also holds MSc. Degree of Master of Business Administration from the Open University of UK. Mr. Mesfin Tasew Chief Operating Officer

Mr. Busera joined Ethiopian in 1985 as a Space Control Agent CCO and progressed through the ladder and has held a number of senior leadership positions including Director of Marketing and Sales Operations, Area Offices and Vice President of Commercial. In September 2009, Mr. Busera was appointed as Chief Executive Officer of ASKY Airlines, Ethiopian second hub in Lome’ (Togo). In September 2013, he was assigned as Chief Commercial Officer. He graduated from Addis Ababa University with a B.A. Degree in Economics.

Mr. Busera Awel Chief Commercial Officer

VP Mrs. Rahel Assefa joined Ethiopian Airlines in 1988 as a college trainee in the Sales Department after graduating from the Addis Ababa University in Management & Public Administration. She worked in various Managerial positions within the Airline such as Sales, Commercial Planning, Revenue Management, as Regional Representative (U.K) and she is currently serving Ethiopian as Vice President Marketing the position she is holding since October 2013. In February 2015, she was named among the Worlds’ 30 Most Compelling Women in Travel by the U.S based Premier Travel Magazine.

Mrs. Rahel Assefa VP Marketing

6 Mr. Laeke Taddese has begun his career with Ethiopian in 1999 as Jr. CIO Application Analyst and has served a number of positions as Senior Application Analyst, Mgr. Galileo System Support, Head Galileo Ethiopia and Dir. Commercial Systems & Galileo. He became Chief Information Officer in September 2015. He graduated from Addis Ababa University with a B.Sc. Degree in Mathematics.

Mr. Laeke Tadesse Chief Information Officer

Mr. Meseret joined Ethiopian as Senior Accountant in the Finance Division in CFO 1986. He has been serving the airline in various managerial streams including Supervisor at Disbursement, Supervisor at General Accounting, Manager General Accounting, Director Financial Accounting, Director Management Accounting, Vice President Finance and as Acting Chief Financial Officer. Currently, he is serving as Chief Financial Officer as of October 2017. He has also served as Director Finance and Strategic Planning for ASKY Airlines. He holds a BA Degree in Accounting from Asmara University and Master of Business Administration from London Open University.

Mr. Meseret Bitew Chief Financial Officer

Capt. Yohannes joined Ethiopian as a pilot after he has graduated from VP Ethiopian Aviation Academy in 1984. He has been serving in various positions including Chief Pilot on 767/757 in 2004, Manager Training and Standard in 2005, Director Flying and Training in 2007 and Air Crew Program Manager in 2010. Currently he is serving as VP Flight Operations since May 2015. He is holder of a Diploma from Pilot Training School, Diploma from Addis Ababa University and 2nd year complete in Electrical Engineering from Addis Ababa University.

Capt.Yohannes HaileMariam VP Flight Operations

7 7 Mr. Kassim joined Ethiopian in 1988 as a college trainee and has been VP assigned as a senior accountant in Finance Division. He worked and progressed through the ladder of managerial and director positions within Finance and has held a number of senior leadership positions of Finance, IT and Strategic Planning divisions. He has also served as Chief Executive Officer of ET’s sister Company; Malawi Airlines, for three years. Currently, he is serving Ethiopian as Vice President Internal Audit & Compliance since 16th of October 2017. He earned his B.A. Degree in Accounting from Asmara University and his Mr. Kassim Geresu Master’s Degree in Business Administration from the Open University of VP Internal Audit and Corporate QMS, SMS & EMS Compliance UK.

VP Mr. Mesay Shiferaw joined Ethiopian on April 10, 1995 as Transportation Agent and served the Airline in various positions including Customer Relations Officer, Supervisor Departure Control, Manager Airport Services Nairobi, Manager Airport Services Washington, Manager Ground Handling & Procedures, Director Recruitment & Placement, Director HR Development, Area Manager Japan, Head Group CEO Office & Corporate Communications, and A/VP HRM. He is currently serving as VP Corporate HRM as of October 2017. He holds BSC in Physics and BA Degree in Economics from A.A.U.

Mr. Mesay Shiferaw VP Corporate HRM

VP Mr. Michael Yared joined Ethiopian as Jr. Customer Service Agent in ADD HUB Division in 1996. He has been serving the airline in various managerial streams including Sup. Passenger Services, Manager Cargo Sales and Cargo Traffic, Station Manager Dubai, Area Manager Ghana, and Area Manager UK and Ireland. Currently, he is serving as VP Customer Service as of February 2018. He holds a Master of Business Administration (MBA) from the highly acclaimed Australian Institute of Business.

Mr. Michael Yared VP Customer Service

8 VP Mr. Genanaw began his career with Ethiopian in 2008 as Assistant General Counsel position and progressed through the ladder to become VP Legal Counsel & Corporate Secretariat in September 2014. He graduated from Addis Ababa University with a Bachelor of Laws. He earned his Master of Laws from Peking University.

Mr. Genanaw Assefa VP Legal Counsel & Corporate Secretariat

Mr. Henok Teferra joined Ethiopian Airlines as Director of Corporate Communications and International Affairs in 2010. He previously served in VP government at the Ethiopian Ministry of Foreign Affairs including as Advisor to the Minister, and in the private sector in France. He has been working in Executive Management positions at Ethiopian Airlines since 2013. He was Vice-President of Corporate Strategy, Communications and Alliances before been appointed and seconded in May 2015 as the Chief Executive Officer of ASKY Airlines, Ethiopian strategic partner carrier in West and Central Africa based in Lomé (Togo). As of October 2017, he has assumed the position of Vice-President of Strategic Planning and Alliances, overseeing the airline’s strategy and equity partnerships; strategic assets comprising of fleet and facility planning; network and business development; bilateral, government and industry Mr. Henok Teferra affairs; alliances and international cooperation; public relation; ET-Holidays, Vice-President of Strategic Planning and Alliances the airline’s in-house tourism program and packages; Ethiopian owned hotel; and the aerospace manufacturing project office. Mr Henok holds a Bachelor’s Degree in Public and Private International Law from the University of Nice-Sophia Antipolis and the Institute of Law for Peace and Development in France, and a Master’s Degree in International Economic Law from Sorbonne University Paris 1, France, where he was also Ph.D. candidate in International Law.

9 9 MD Mr. Fitsum Abady began his career with Ethiopian in 1995 as Transportation Agent and has held a number of leadership positions in a number of divisions in the Airline including; Ethiopian Cargo, Area Offices and Sales and Marketing. Currently, he is serving Ethiopian as Managing Director Ethiopian Cargo and Logistics Services since January 01, 2014. He graduated from Addis Ababa University with a BSC Degree in Biology. He earned his Master’s Degree in Business Administration from the Indian ITM University.

Mr. Fitsum Abady MD Ethiopian Cargo Services

Mr. Solomon joined Ethiopian in 1979 as a Junior Aircraft Mechanic MD after graduating from Ethiopian Aviation Academy. He has been serving in various managerial positions including Manager Market Research & Analysis, Area Manager Uganda, Scandinavia, Kenya & Seychelles, and South Korea. Director Service Quality Management, and VP Customer Services. Currently he is serving Ethiopian as Managing Director Ethiopian Aviation Academy since July 26, 2016. He holds BA degree in Management and Public Administration from Addis Ababa University. Mr. Solomon Debebe MD Ethiopian Aviation Academy

Mr. Zelalem Tsehaye joined Ethiopian in 1998 as a Junior Aircraft MD Technician after graduating from Ethiopian Aviation Academy. He has been serving in various managerial positions including Supervisor Line Maintenance, Technical Manager ROME Station, Manager B757/B737 Scheduled Maintenance, Director Aircraft Base Maintenance and A/MD ET MRO SVCS. He is a graduate of Ethiopian Aviation Academy in Aircraft Maintenance; and holds Master’s Degree in Business Administration from the Open University of London(UK) and Master’s Degree in Logistics and Supply Chain Management from Addis Ababa University. Mr. Zelalem Tsehaye He is Type rated and certified on B787/B777/B767/B757/B737/F-50 MD Ethiopian MRO Services aircraft. Currently he is serving Ethiopian as Managing Director Ethiopian Maintenance, Repair and Overhaul Services.

10 Mr. Esayas joined Ethiopian in July 1991 as Transit Agent in Marketing MD Division. He has been serving in various managerial positions including Manager Space Control & Yield Country Manager Greece, Nigeria and Germany. In November 2010, Mr. Esayas was also appointed as Vice President of Ethiopian Cargo and Logistics to head all the cargo operation. In January 2012, he was appointed as SVP Global Sales. Currently, he is serving Ethiopian as Managing Director Ethiopian International Services since October 01, 2013. He holds BSc. Degree in Mathematics from Addis Ababa University. He also earned Degree of Master of Business Administration from UK Open Mr. Esayas WoldeMariam MD Ethiopian International Services University.

Mr. Tekle G/Yohannes began his career at Ethiopian in 1995 as Transportation Agent and has held a number of leadership positions MD in a number of divisions including: Addis Ababa Airport, Ethiopian Cargo, Aviation Academy as Chief Instructor, Area/Field Offices (Belgium and UK). In June 2013, Mr. Tekle was appointed as Director Addis Ababa Hub and transferred to Region Office as Director Europe and America in July 2016. Since July 2017, he has been assigned as A/MD Ethiopian Ground Services. As of October 2017, he is serving as Managing Director Ethiopian Ground Services, the position he is currently holding. Marketing Management and he has his Master’s Degree in Economic Development and Good Governance from the university of Paris and CERIS Mr. Tekle G/Yohannes in Belgium. He is also studying Executive MBA from open university in UK. MD Ethiopian Ground Services

11 11 12 13 13 GROUP CEO MESSAGE

14 The 2018/19 fiscal year was one which saw a tragic In line with our multi-hub strategy in Africa, we set episode in the long, successful history of our airline. up Ethiopian Mozambique and Chad airlines through The passing away of passengers and colleagues in joint ventures; the carriers have now gone operational. the fateful ET-302 flight on 10 March 2019 has Similarly, we have signed partnership agreements with gone down in history as an incident which broke our the governments of Zambia and Ghana and we are hearts. We will always remember all the lives lost in setting up joint venture carriers. the accident. During the fiscal year, we have also finalized and The fiscal year was a uniquely challenging year for inaugurated major infrastructure projects including Ethiopian for other reasons as well. Besides the the expanded Addis Ababa International Airport and emotional toll the accident had on every member Ethiopian Skylight Hotel, the largest five-star hotel in of the Ethiopian family, we also grappled with the Ethiopia. financial impacts of the grounding of all our 737-800 As in the past years, our successful efforts have been MAX fleet. During the fiscal year, fuel price hiked appreciated and recognized worldwide with multiple by 25 percent and demand for air transport showed awards including ‘Best Airline in Africa’ Award by a decrease due to a global economic slowdown. SKYTRAX for the 2nd time, ‘Company of the Year’ Inevitably, the combined impact has eaten into our by All Africa Business Leaders Award, and ‘Best Airline revenue. Add to this the decline in inbound traffic to in Africa’ Award from African Airlines Association Africa due to the exaggerated coverage of the Ebola (AFRAA) for the 7th year in a row, among others. outbreak in DRC, and the sporadic instability in our country which led to a slowdown in the domestic Overall, our performance during the 2018/19 fiscal economy, dwindling exports, and loss of potential year once again highlighted that we, as an airline, are revenue. on the right track to further bolster the successes we have been achieving over the years. In fact, now that However, against all odds, we have continued striding we have surpassed most of our Vision 2025 growth forward on the path of growth as envisioned in our targets, we are drafting Vision 2035 with a view to strategic growth roadmap. My deepest gratitude scale up the achievements we cherished in the past. goes to all my 16,000 plus colleagues at Ethiopian who strive day and night for the success of our carrier! Once again, I would like to thank all the management and staff of Ethiopian Airlines for their unreserved During the 2018/19 fiscal year, we transported 12.1 contribution which keeps our carrier shining high in million passengers, a 14 percent growth compared to the skies! that of the previous year, while cargo tonnage showed an increase of 8 percent. Our revenue also grew by 17 percent along with a 13 percent load factor growth. We also increased the number of international destinations we serve to a total of 121 by adding six new routes, namely, Asmara, Mogadishu, Istanbul, Moscow, Manchester and Jakarta.

15 15 MISSION STATEMENT VALUES

As an airline, safety is our first priority, MISSION Ethiopian is a high performance and learning organization with continuous improvements, innovation To become the leading and knowledge-sharing. We Aviation group in Africa by accept change for the growth providing safe and reliable VISION opportunity it brings and passenger and cargo always seek for and apply the air transport, Aviation best ideas regardless of their Training, Flight Catering, source, Vision 2025: MRO and Ground We recognize and To become the Services by 2025. reward employees for most competitive To ensure being an airline their performance and and leading aviation of choice to its customers, demonstrate integrity, group in Africa employer of choice to respect to others, candor and by providing safe, its employees and an team work, market driven and investment of choice to its Act in an open fashion and customer focused Owner, be result-oriented, creative passenger and cargo To contribute positively and innovative, transport, aviation to socio economic Adopt Zero tolerance to training, flight development of Ethiopia indifference, inefficiency and catering, MRO and in particular and the bureaucracy, ground countries which it Encourage 360° free flow operates in general by and sharing of information, undertaking its corporate Treat our customers the social responsibilities and same way we would like to providing vital global air be treated and always look connectivity, for ways to make it easier for customers to do business with us, We are an equal opportunity employer

17 17 AWARDS Ethiopian Wins SKYTRAX Best Airline in Africa Award for 2nd Time Addis Ababa, 19 July 2018. Ethiopian Tops on SKYTRAX World Airline Awards 2018: ‘Best Airline in Africa’, ‘Best Business Class in Africa’& ‘Best Economy Class in Africa ’ : Addis Ababa, 21 July 2018. Ethiopian Receives ISO Environment Management System Certification August 30, 2018. Ethiopian Voted “Best African Airline” at Arabian Travel Awards Addis Ababa, September 25, 2018. Ethiopian wins Africa Lease Deal of the Year 2018 Award October 9, 2018. Ethiopian Crowned Best Airlines in Africa Award, for the 7th Consecutive year in a Row Addis Ababa: November 27, 2018. Ethiopian Recognized as Company of the Year by All Africa Business Leaders Award Addis Ababa, 5 December 2018.

Ethiopian Airlines Group is Voted ‘Best Airline in Africa’ for 3rd Consecutive Year at Skytrax 2019 World Airlines Awards. Ethiopian Recognized for 2nd Year in a Row as Top Performing Cargo Airline by Guangzhou Airport Addis Ababa February 07, 2019. Ethiopian GCEO Receives “Most Influential People of African Descent” Award Addis Ababa, 11 February 2018. Ethiopian Wins ‘African Cargo Airline of the Year’ and ‘Air Cargo Brand of the Year in Africa’ Awards.

Ethiopian Wins the Prestigious ‘African Champion of the Year’ Award Addis Ababa, 26, March 2019.

Ethiopian Cargo & Logistics Services Wins Best Cargo Airline –Africa Award from Air Cargo News.

Ethiopian Airlines Group is Voted ‘Best Airline in Africa’ for 3rd Consecutive Year at Skytrax

2019 World Airlines Awards Addis Ababa, 19 June 2019.

19 19 ROUTE AND FREQUENCEY

20 Asmara , Eretria July 17,2018

Mogadishu, Somalia November 02,2018

Manchester, UK December 11, 2018

Moscow, Russia December 17, 2018

John F. Kennedy (JFK), New York June 17, 2019

21 21 MEGA INFRASTRUCTURE DEVELOPMENTS INFRASTRUCTURES

Ethiopian Airlines, the Largest Aviation Group in Africa and SKYTRAX Certified Four Star Global Airline, inaugurated state-of-the-art passenger terminal and its Skylight Hotel on January 27, 2019 in the presence of FDRE Prime Minister H.E. Dr. Abiy Ahmed, African Union Chairperson H.E. Mr Moussa Faki, Ministers, high level government officials, Ethiopian Airlines Board Members, Group CEO Ethiopian Airlines Mr Tewolde GebreMariam, Executive Management Members and invited guests.

Encourage 360° free flow and sharing of information, Treat our customers the same way we would like to be treated and always look for ways to make it easier for customers to do business with us, We are an equal opportunity employer

23 23 CARGO document is used. For tickets that cover more than one flight segment, the Ethiopian airlines Group identifies each flight segment as a distinct performance obligation, since each flight segment is independent and can be distinguished in the context of the contract.

In its cargo business, the Ethiopian airlines Group has identified the entire freight service as a distinct performance obligation. The customer receives the benefit of the transport service and uses the service at the same time as this performance obligation is fulfilled with each transport segment. In this case, the customer takes control of the company’s output while the carrier provides its service. The customer receives the benefit of the service as each transport segment is fulfilled. The corresponding cargo

24 25 25 MAINTENANCE, REPAIR AND OVERHAUL (MRO)

26 revenue is therefore recognized at the prorate value when the documents for each individual freight segment are used. Ethiopian Airlines group consider for per- forming its service once the transport has been carried out.

The main distinct performance obligations in the MRO segment are the provision of

maintenance, aircraft, and engine overhaul services, which are recognized over time. These performance obligations involve estimating the proportion of the total contract already completed and the profit overall contract, so that an input-oriented measurement of the percentage of completion can be made contract assets and contract liabilities are therefore both recognized. In some cases, the contracts in the MRO segment make it necessary not to recognize distinct services as individual performance obligations but rather as a series. Furthermore, some of the contracts include stand by obligations that require

27 27 CATERING the recognition of revenue over time. This is particularly the case when remuneration is paid in the form of a fixed rate per hour of flying time. For such contract, the percentage of completion is primarily measured on the basis of the hours invoiced monthly to the customer.

The Ethiopian airlines group offers products and services related to in-flight service. These include catering, in-flight sales and entertainment, in-flight service equipment and the related goods and services and the operation of lounges related to this catering have been identified as distinct performance obligations. The performance obligation to prepare meals is generally fulfilled when the meals are delivered to the customers. The catering performance obligation is fulfilled over time between the transport of the meals to the airport and the disposal of the waste, depending on the services ordered by the customer. For performance obligations over time, the percentage of completion is measured on an output basis.

The Ethiopian airlines group offers services related to Airport services like landing, parking, lighting, terminal facility, passenger services, rental

Teff

28 29 29 30 AVIATION ACADEMY

31 31 EFFICIENT GROUND SERVICE OPERATION

32 EFFICIENT GROUND SERVICE OPERATION

33 33 AIRPORT SERVICE

34 35 35 36 of offices, warehouse, restaurants, shops, and checking counters. Identified performance obligations the performance obligation to give airport services are ready to use and the revenue recognized when the contract obligation full field.

Email:[email protected] Tel:+251116818181 www.ethiopianskylighthotel.com

37 37 38 Technology

Ethiopian Airlines Group to Set up Aircraft Seat Cover and Other Interior Parts Manufacturing

Facility in partnership with ACM Aerospace of Germany : Addis Ababa, July 5, 2018

Ethiopian Pioneers 1st GEnx Engine Repair in Africa Addis Ababa, 12 October 2018

Ethiopia Avails to All African Travelers Visa On-line and On-Arrival Service: Addis Ababa, 2

November 2018

Ethiopian Implements IATA’s Fast Travel Self Check-in Initiative- Makes Airport Check-in in

Addis Ababa Seamless and Hassle-Free Addis Ababa, 28 December 2018

Ethiopian Airlines and Hibret Bank Launch New Co-Branded Debit Card January 4, 2019

39 39 G R A D U A

T Ethiopian Airlines Aviation Academy (EAA), ICAO I TRAINAIR Plus member and IATA authorized global training , has graduated 302 aviation O professionals at a ceremony held at the Academy’s Commercial and Cabin Crew N Training Building on Saturday, July 14, 2018.

40 EAA Graduates 20 Flight Attendants from Mozambique A Dream Realized: The Next Step for a United Africa - Addis Ababa, 08 March 2019.

41 41 FINANCIAL REPORT 43 43 REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion Basis for opinion Key Audit Matters

We have audited the We conducted our audit Key audit matters are those financial statements of Ethiopian in accordance with International matters that, in our professional Airlines Group, which comprise Standards on Auditing (ISAs). judgment, were of most significance the statement of financial position Our responsibilities under those in our audit of the financial as at 30 June 2019, and the standards are further described statements of the current period. statement of profit or loss and other in the Auditor’s Responsibilities These matters were addressed in comprehensive income, statement for the Audit of the Financial the context of our audit of the of changes in equity and statement Statements section of our report. financial statements as a whole, and of cash flows for the year then We are independent of the Group in forming our opinion thereon, ended, and notes to the financial in accordance with the International and we do not provide a separate statements, including a summary of Ethics Standards Board for opinion on these matters. significant accounting policies. Accountant’s Code of Ethics for Professional Accountants (IESBA A. Passenger revenue In our opinion, the Code) together with the Ethical recognition accompanying financial statements requirements that are relevant to present fairly, in all material respects, our audit of the financial statements The accounting for passenger the financial position of Ethiopian in Ethiopia, and we have fulfilled revenue recognition involves Airlines Group as at 30 June 2019 our other ethical responsibilities complex IT systems and involves and its financial performance and its in accordance with those the exchange of information with cash flows for the year then ended requirements and the IESBA Code. industry systems and other airlines in accordance with International We believe that the audit evidence for a high volume of transaction. Financial Reporting Standards we have obtained is sufficient and There is a risk that operating (IFRS). appropriate to provide a basis for revenue may not be appropriately our opinion. and completely recognized. In response to the addressed risk, we have tested the operating effectiveness of key

44 controls designed for the passenger revenue Responsibilities of management and those process. We have analyzed the flow of transactions from charged with governance for the financial ticket sales to passenger revenue. We have also identified statements and tested manual postings to passenger revenue. We have tested a sample of passenger tickets to ensure that Management is responsible for the preparation the revenue was recognized in the correct period. Our and fair presentation of the financial statement in testing did not identify major weaknesses in the design accordance with IFRSs and for such internal control and operation of controls that would have required us as management determines is necessary to enable the to expand the nature or scope of our planned detailed preparation of financial statements that are free from test work. overall, we found no concerns in respect to material misstatement, weather due to of error. the recording of revenue at appropriate value. In preparing the financial statements, management is responsible for assessing Ethiopian’s ability to continue as a going concern, disclosing, as applicable,

B. Provision for aircraft maintenance obligation matter related to going concern and using the gong concern basis of accounting unless management either The accounting for maintenance obligation under intends liquidate Ethiopian or to cease operations, has lease agreement, including restoration and hand back no realistic alternative but to do so. Those charged with provisions, is subject to management assumption. There governance as responsible for overseeing Ethiopian are risks that obligations may not be recorded at correct financial reporting process. amounts, may not be provided for at all, or may not be properly classified and disclosed in the financial Auditor’s Responsibilities for the audit of the statements. We obtained and inspected the engine, financial statements airframe and other assets lease agreements to check the completeness of the liabilities for obligations for Our objects are to obtain reasonable assurance restoration and hand back at the end of the lease. Our about whether the financial statements as a whole audit procedures did not identify major weakness and, are free from material misstatement, whether due to overall, we found no concerns in respect to recording fraud or error, and to issue an auditor’s report that the provision. includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatement can arise from fraud or error and are considered materials

45 45 if, individually or in the aggregate, they could reasonably be expected to influence the economic decision of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise financials professional judgment and maintain professional skepticism throughout the audit. We also • Identify and assess the risks of materials misstatement of the financial statements, whether due to fraud or error., design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materials misstatement resulting from fraud is higher than for one resulting from error, fraud may involve collusion forgery intentional, omission, misrepresentation, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design

producers that are appropriate in the circumstance but not for the purpose of expressing an opinion on effectiveness of Ethiopian’s internal control. • Evaluate the appropriateness of accounting polices used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern bases of accounting and, based on the audit evidence, obtain, whether a material uncertainty exists related to events or condition that may cast significant doubt on Ethiopian’s ability to continue as a going concern. If we conclude that a material un certainty exists, we are required to draw attention in our auditor’s report to the related disclosers in the financial statements or if such disclosers in educate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or condition may Couse Ethiopian to cease to continue as to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statement represent the underlying transaction and events in a manner that achieves fair presentations.

46 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit finding, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.

From the matters communicated with those charged with governance, with determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matter in our auditor’s report unless law or regulation precludes public discloser about the matter or when in extremely rare circumstances determine that a matter should not be communicated in our report because the adverse consequence of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Ato Tegegn Haile Mariam.

47 47 ethiopian airlines group statement of profit or loss and other comprehensive income for the year ended 30 june 2019

Notes 2019 Birr 2018 Birr Operating Revenue 4 113,068,129,257 90,906,968,909 Operating Expenses 5 (105,331,230,778) (83,578,055,595)

GROSS OPERATING PROFIT 7,736,898,479 7,328,913,314

Interest Income 143,813,454 173,821,098 Provision for stock & Debtors 20,771,694 (411,729,385) Browning Costs (2,590,784,827) (1,784,712,860) Gain /(Loss) On Foreign Currency Translation 122,864,709 469,852,268 Share of Loss in Associates (13,003,188) (13,260,746) Non-Operating Revenue 6 2,402,887,336 2,210,502,206 Non-Operating Expenses 7 (993,398,536) (797,095,657) NON-OPERATING GAIN (LOSS) (906,849,360) (152,623,077)

PROFIT FOR THE YEAR 6,830,049,119 7,176,290,237 Income Tax - (552,382,907) PROFIT AFTER TAX 6,830,049,119 7,176,290,237 Other comprehensive income Items will not be reclassified to profit or loss Exchange rate difference on Translation to presentation currency 2,808,327,705 6,030,042,935 Employee benefits 22(iv) (5,136,043) (26,007,572)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 9,633,240,781 12,627,942,692

48 ethiopian airlines group statement of financial position as of 30 june 2019

2018(as restated) ASSETS Notes Birr Birr NON-CURRENT ASSETS Property, plant and equipment 2(f),(g),9,29 172,826,600,835 154,863,888,675 Intangible assets 2(h),(g),10 178,280,356 190,652,142 Investment in associates 2(p),11 492,507,965 31,001,545 Treasury bond 12 961,341,419 875,378,328 Standing deposits 13 13,373,183,873 12,604,692,157 Other loan receivables 2(j),14 298,257,587 309,104,239 188,130,172,035 168,874,717,086 CURRENT ASSETS Stock 2(o),15 4,611,067,046 4,069,740,619 Trade and other receivables 2(j),16 23,724,998,782 17,554,258,043 Short term investments 17 2,211,682,500 217,567,647 Cash and cash equivalents 2(q),18 10,834,815,394 15,822,262,808 41,382,563,721 37,663,829,117

TOTAL ASSETS 229,512,735,756 206,538,546,203

EQUITY AND LIABILITIES CAPITAL Authorized - Birr 100,000,000,000 Paid up capital 19 90,625,693,785 81,568,068,791 Other comprehensive income 10,653,678,900 7,845,351,195

TOTAL EQUITY 101,279,372,685 89,413,419,986

NON-CURRENT LIABILITIES Long term loans 2(j),20 77,292,240,450 71,860,353,133 Provision for maintenance 2(m),21 879,706,375 346,017,710 Employee be 22 345,695,560 205,955,912 Deferred Tax 2(1,ii),23 0 2,251,733,883 Deferred and non-current liabilities 24 781,526,265 896,429,415 79,299,168,650 75,560,490,054 CURRENT LIABILITIES Trade and other liabilities 2(j),25 14,193,713,209 12,265,480,371 Contract liability 2(1i) 22,192,040,564 19,164,695,985 Income tax payable 2(1),26 103,327,570 512,553,700 State dividend payable current portion 27 495,589,630 1,173,756,574 Current maturity of long term loans 20 11,949,523,448 8,448,149,533 48,934,194,421 41,564,636,163

TOTAL EQUITY AND LIABILITIES 229,512,735,756 206,538,546,203

49 49 ETHIOPIAN AIRLINES GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019

Paid up capital Comprehensive Profit Total Birrr income (loss) Birr Birr Birr

BALANCE AT 30 JUNE 2017 29,111,702,343 1,841,315,832 - 30,953,018,175

Net worth from acquired business (as restated, note 29) 40,322,403,770.00 40,322,403,770 Asset revaluation surplus from acquired business 5,287,238,2785 5,287,238,275 Contribution from government 222,815,074 222,817,074 Profit for the year 6,623,907,329 6,623,907,329 Transfer to capital 6,623,907,329 (6,623, 907,329) -

Other comprehensive income (loss) - 6,004,035,363 - 6,004,035,363

BALANCE AT 30 JUNE 2018 (AS RESTATED) 81,568,068,791 7,845,351,195.00 - 89,413,419,986

Deferred Tax Liability (note 23) 2,227,575,875 2,227,575,875 Profit for the year 6,830,049,119 6,830,049,119 Transfer to capital 6,830,049,119 (6,830,049,119) -

Other comprehensive income (loss) - 2,808,327,705 - 2,808,327,705

BALANCE AT 30 JUNE 2019 90,625,693,785 10,653,678,900 - 101,279,372,685

50 ETHIOPIAN AIRLINES GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2019

Paid up capital Comprehensive Profit Total Birrr income (loss) Birr Birr Birr

BALANCE AT 30 JUNE 2017 29,111,702,343 1,841,315,832 - 30,953,018,175

Net worth from acquired business (as restated, note 29) 40,322,403,770.00 40,322,403,770 Asset revaluation surplus from acquired business 5,287,238,2785 5,287,238,275 Contribution from government 222,815,074 222,817,074 Profit for the year 6,623,907,329 6,623,907,329 Transfer to capital 6,623,907,329 (6,623, 907,329) -

Other comprehensive income (loss) - 6,004,035,363 - 6,004,035,363

BALANCE AT 30 JUNE 2018 (AS RESTATED) 81,568,068,791 7,845,351,195.00 - 89,413,419,986

Deferred Tax Liability (note 23) 2,227,575,875 2,227,575,875 Profit for the year 6,830,049,119 6,830,049,119 Transfer to capital 6,830,049,119 (6,830,049,119) -

Other comprehensive income (loss) - 2,808,327,705 - 2,808,327,705

BALANCE AT 30 JUNE 2019 90,625,693,785 10,653,678,900 - 101,279,372,685

51 51 ethiopian airlines group statement of cash flows for the year ended 30 june 2019 CASH FLOWS FROM OPERATING ACTIVITIES Birr 2018 Birr Profit for the year 6,830,019,119 6,623,907,329 Adjustments for income tax expense recognized in profit or loss - 552,382,907 Finance costs recognized in profit or loss 2,590,784,827 1,784,712,860 Interest income recognized in profit or loss (143,813,454) (173,821,098) Depreciation and amortization 8,444,022,035 7,800,830,036 Amortization of purchase incentives (527,741,308) (542,832,585) Loss on currency fluctuation on loans (282,331,312) 715,418,928 Provision for doubtful debts (212,631,368) 280,798,771 Provision for stock obsolescence 191,859,674 130,930,614 Share of loss from associate 13,003,188 13,260,746 Provision for maintenance 546,140,531 273,840,413 Creditors’ accounts written back to profit or loss (727,455,507) (340,396,325) 16,721,886,425 17,119,032,597 Movements in working capital Increase in stock (992,241,207) (911,684,027) Decrease/ (increase) in debtors and prepayments (6,529,869,856) (6,127,774,390) Increase in standing deposits 768,491,715 (2,518,821,089) Increase in creditors 3,760,480,470 4,115,460,530 Increase (decrease) in unearned transportation 3,027,344,579 6,640,459,812 (Decrease)/increase in deferred and non-current liabilities (793,070,100) 333,657,916 Cash generated from operations 15,963,022,027 18,650,331,348 Interest paid (2,510,282,586) (1,746,505,928) Income tax paid (409,226,132) (333,284,840) Net cash generated by operating activities 13,043,513,310 16,570,540,580 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 121,254,206 153,784,969 Treasury bond (85,963,091) 192,983,042 Payments for property, plant and equipment (7,044,025,500) (2,303,962,204) Payment for investment in associate (472,631,180) (588,472) Payment for short term investment (1,994,114,853) (165,535,629) Payment for intangible assets (38,029,507) (165,614,624) Net cash used in investing activities (9,513,509,925) (2,288,932,918) CASH FLOWS FROM FINANCING ACTIVITIES Chas from business acquired - 1,221,237,298 Proceed from government subsidy 354,046,465 222,817,073 Proceeds from borrowings 51,083,166 1,235,671,698 Payment for stated dividend (678,166,950) - Repayment of borrowings (10,024,087,606) (8,574,857,960) Net cash generated from financing activities (10,297,124,925) (5,895,131,891) Effect of exchange rates differences (net) 1,779,674,125 (2,400,826,969) (Decrease)/Increase in cash and cash equivalents (4,987,447,415) 5,985,648,802 Cash and cash equivalents at the beginning of the year 15,822,262,809 9,836,614,006 Cash and cash equivalents at the end of the year 10,834,815,394 15,822,262,809 Cash and cash equivalents comprise:- Cash and bank balances 10,834,815,394 15,822,262,809 Short term investments which mature within three months 10,834,815,394 15,822,262,809 52 1.BUSINESS DESCRIPTION

Ethiopian Airlines Group was originally established in June 1945 and had its first scheduled flight in April 1946. It is the flag carrier of the country and during the year served 141 international and 21 domestics’ destinations.

The Airline was established as a public Enterprise in Ethiopia in 1995 by council of Ministers regulations NO.216/1995 and is governed further by Council of Ministers Regulations

No.81/2003, 147/2008, 292/2013 and NO.389/2016. Its principal place of business is in

Addis Ababa Ethiopia and it has area and station offices all over the world. Ethiopian Airlines

Group is wholly owned by the Government of the Federal Democratic Republic of Ethiopia.

Ethiopian airlines group follows multi business model to get advantage of integrating backward so that they can give complete services for our customers. The airline business is mainly six-freedom traffic where by passengers passes through the main hub Addis Ababa and layover and connect next flights. Then they can stay near to airport to its own hotel. In order to grow

Ethiopian airlines group need to have well advanced airports which can grow parallel to the airline business. The airport merger facilitates the advantage of growing together.

Ethiopian Airlines Group was established for the following purposes:

• To provide domestic and international air transportation services as well as general aviation services;

• To manufacture and repair aircraft and aircraft parts

• To construct, expand, maintain and administer airports

• To provide aviation training services

• To provide airport Services (landing, parking, lighting, Passenger services and terminal facility)

• To provide hotel, recreational and other tourism services related to the aviation industry or invest in

such services through equity participation

• To engage in other related activities necessary for the attainment of its purpose.

53 53 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting B. Going concern policies, which have been applied consistently in the The financial statements have been prepared preparation of these financial statements, are set out on a going concern basis. Management has no doubt below. that the Ethiopian Airlines Group would remain in

existence after 12 months.

A. Basis of preparation

The financial statements have been prepared C. Changes in accounting policies and disclosures in accordance with International Financial Reporting New standards, amendments to published standards

Standards (IFRS) as issued by International and interpretations that are relevant to Ethiopian

Accounting Standards Board. The measurement airlines group basis applied is the historical cost basis, except where New Standards Effective and applied in the otherwise stated in the accounting policies below. The current year financial statements comprise the statement of profit or loss and other comprehensive income, the statement of Certain new standards or amendments became financial position, the statement of changes in equity, effective for the current year. These are as follows the statement of cash flows and the notes to the financial statements. I. IFRS 9, Financial Instruments

IFRS 9 replaced IAS 39. The new standard

The preparation of financial statements in addresses the classification, measurement and de conformity with IFRS requires the use of estimates and recognition of financial assets and financial liabilities, assumptions. It also requires management to exercise introduces a new impairment model for financial assets judgment in the process of applying the Ethiopian and also new rules for hedge accounting. airlines Group’s accounting policies. The areas involving a high degree of judgment or complexity, or Ethiopian Airlines Group adopted IFRS 9 from where assumptions and estimates are significant to the 1 July 2018. Ethiopian Airlines Group’ financial assets financial statements, are disclosed in Note 3. comprising trade and other receivables (excluding

prepayments). Ethiopian Airlines Group has assessed

that these financial assets meet the conditions for

54 classification and measurement at amortised cost IFRS 9 has substantially reformed the existing under IFRS 9. Accordingly, there is no impact on the hedge accounting rules. It provides a more principles- measurement of Ethiopian Airlines Group’ financial based approach that aligns hedge accounting closely assets at amortised cost’. There is no impact on with risk management policies. Interest rate swaps and

Ethiopian Airlines Group’ financial liabilities as the new currency forwards in place as at 1 July 2018 qualified requirements only affect the accounting for financial as cash flow hedges. Ethiopian Airlines Group risk liabilities that are designated at fair value through management strategies and hedge documentation profit or loss and Ethiopian Airlines Group does not are aligned with the requirements of IFRS 9 and have such liabilities of significant value. these relationships are therefore treated as continuing

hedges. Accordingly, there is no material impact

The new impairment model under IFRS 9 on Ethiopian Airlines Group’ hedge accounting on requires the recognition of impairment provisions adoption of IFRS 9. based on expected credit losses (ECL) rather than only incurred credit losses, as is the case under IAS 39. II. IFRS 15- Revenue from contracts with

It applies to trade receivables and other financial assets. customers

For financial assets comprising of trade receivables, The objective of IFRS 15 is to establish the

Ethiopian Airlines Group adopted the simplified principles that an entity shall apply to report useful approach allowed under IFRS 9, under which lifetime information to users of financial statements about the expected loss allowance is estimated to calculate nature, amount, timing, and uncertainty of revenue and provision. For all other financial assets, Ethiopian cash flows arising from a contract with a customer.

Airlines Group follows the 12 month expected credit loss model to calculate the impairment provision. This Revenue from passenger tickets including change did not have any significant impact on the loss excess baggage and cargo sales are recognized when allowance for these financial assets compared to the the transportation services is provided .initially sales previous methodology. of tickets and airway bills are recognized as a liability

and shown in the statement of financial position under

current liabilities with the heading contract liability

until the obligation will satisfy.

55 55 All other revenues including revenue from catering operation, hotel services, and airport services, Maintenance, Repair and Overhaul (MRO) recognized when goods and services are delivered. most of Ethiopian airlines group contract liability are transferred to revenue when the obligation satisfies and liability reduces when the un used flight coupons more than a year will be reduced the contract liability .and there is few contract assets related to MRO revenue which is very minimal .see the below contract liability summary table .

Contract liability summery table Contract liability begin- Revenue realized from contract 15,856,770,215 ning Balance in ETB 19,164,695,985 liability Beginning of the year

Contract liability Current Revenue realized from current year addition In ETB 166,660,087,648 year contract liability 89,855,031,216

Total revenue recognized In ETB 105,711,801,431

Total Refund from Current Year liability In ETB 57,920,941,638

Total 163,632,743,069 Contract liability Ending Balance in ETB

Contract liability Ending Balance in ETB

56 III. IFRIC 22- Foreign currency transaction and advance consideration Furthermore, this Interpretation should not

The In¬ter¬pre¬ta¬tion covers foreign currency be applied to income taxes and insurance contracts trans¬ac¬tions when an entity recognizes a non- (including reinsurance contracts) that it issues or mon¬e-tary asset or non-mon¬e¬tary liability arising reinsurance contracts that it holds. The Group apply from the payment or receipt of advance con¬sid¬er¬a- IFRIC 22 on initial recognition of the related asset, tion before the entity recognizes the related asset, expense or income on the de recognition of a non- expense or income. monetary asset or non-monetary liability relating to

advance consideration beginning from its financial

According to the interpretation, the date of the year ending 30 June 2019. trans¬ac¬tion, for de¬ter¬min¬ing the exchange rate to use on initial recognition of the related assets, expense Not yet effective and have not been early adopted or income (or part of it) upon the de recognition of At the date of authorisation of these financial the non-monetary asset or non-monetary liability, is the statements, certain new accounting standards have date on which an entity initially recog¬ni¬zes the non- been published that are not mandatory for the financial mon¬e¬tary asset or non-monetary liability. If there year ended 30 June 2019, and have not been early are multiple payments or receipts in advance, a date adopted. The following new standards will have an of trans¬ac¬tion is es¬tab¬lished for each payment or impact on Ethiopian Airlines Group and management receipt. This interpretation does not apply when an has performed an initial estimate of its impact; entity measures the related asset, expense or income on initial recognition: I. IFRS 16, Leases (effective for Ethiopian Airlines

(a) At Fair value or Group from 1 July 2019)

(b) At the fair value of the consideration paid This standard was issued in January 2016. It or received at a date other than the date of initial replaces IAS 17 Leases, IFRIC 4 Determining whether recognition of the non-monetary assets or non- an Arrangement contains a Lease, SIC-15 Operating monetary liability arising from advance consideration Leases-Incentives and SIC-27 Evaluating the Substance

(for example measurement of goodwill applying IFRS of Transactions Involving the Legal Form of a Lease.

3 business combination). IFRS 16 sets out the principles for the recognition,

57 57 measurement, presentation and disclosure of leases. interest taxes, depreciation, and amortization

The objective is to ensure that lessees and lessors (EBITDA), earnings before interest and tax (EBIT), provide relevant information in a manner that faithfully earning per share (EPS), return on equity (ROE) and represents those transactions. The standard introduces operating cash flows. On the statement of financial a single lessee accounting model and requires a lessee position both asset and liability are increased and to recognize assets and liabilities for all leases with a expected to decrease the operating income of the term of more than 12 months, unless the underlying Ethiopian airlines group and will increase-operating asset is of low value (such as personal computers). expense of the Ethiopian airlines group on this effect

The lessee is required to recognize a right-of-use asset operating profit will expect to decrease. Ethiopian representing its right to use the underlying leased asset Airlines Group will apply this standard on July 2019. and a lease liability representing its obligation to make lease payments. II. IFRIC 23 uncertainty over income tax

treatments

Lessor accounting under IFRS 16 is substantially IFRIC 23 clarifies how to account for income unchanged from today’s accounting under IAS 17. tax when it is unclear whether the taxing authority

Lessors will continue to classify all leases using the same will accept the company’s tax treatment. If there is classification principle as in IAS 17 and distinguish an uncertain tax treatment which is any tax treatment between two types of leases: operating and finance applied by a company when it is unclear whether that leases. treatment will be accepted by the tax authorities. The

IFRS Interpretations Committee (IFRS IC) observed

IFRS 16 also requires lessees and lessors to that entities applied diverse accounting methods when make more extensive disclosures than under IAS 17. the application of tax laws has been uncertain. Under

This standard will have a significant impact on IFRIC 23, the key test is whether it is probable (i.e.

Ethiopian Airlines Group considering the number more likely than not) that the taxing authority will of aircrafts under operating lease. Operating lease accept the company’s tax treatment as reported in the charges will be replaced with interest and depreciation income tax filing. If yes, the company records the same charges. These changes affect key ratios like current amount in the financial statements as submitted (or ratio, asset turnover, interest cover, earnings before planned to be submitted) in the income tax return.

58 If no, the company reflects the effect of the tax uncertainty with different method that it expects will better predict the resolution of the uncertainty: IFRIC 23 applies to all aspects of income tax accounting when there is uncertainty about the income tax treatment of an item, including taxable profit or loss, the tax basis of assets and liabilities, tax losses and credits, and tax rates effective from

01,January 2019 .In the case of Ethiopian airlines group tax applied only one of Business segments which is Skylight hotel .we will comply starting from 01July 2019 and the impact is not assessed.

The below Additional new standards and amendments not effective and not early adapted and will comply starting from 01july 2019.

Effective date (annual periods Impact on financial statement Title beginning on or assessment status after)

Amendments to IFRS 9 - Prepayment 1-Jan-19 This has no impact Features with Negative Compensation

As this is related to IFRS 9 with in- Amendments to IAS 28 - Long-term 1-Jan-19 vestment in associates for long term Interests in Associates and Joint Ventures interest, it has no major impact

AIP (2015-2017 Cycle): IFRS 11 Joint Arrangements - Previously held Interests in 1-Jan-19 This has no impact a joint operation

AIP (2015-2017 Cycle): IAS 12 Income Ethiopian airlines group is exempt Taxes - Income tax consequences of from profit tax except Skly light 1-Jan-19 payments on financial instruments classified hotel and this is assessed and has as equity no major impact.

AIP (2015-2017 Cycle): IAS 23 Borrowing Costs – Borrowing costs eligible 1-Jan-19 This has no impact. for capitalization

59 59 D. FOREIGN CURRENCY TRANSLATION

I Functional and presentation currency The functional currency of the Ethiopian Airlines Group is United States Dollar (USD) while that of Ethiopian Airports and Sky light hotel (the operating segment under Ethiopian Airlines Group) is Ethiopian Birr. These financial statements are presented in Ethiopian Birr. II Foreign currency transactions and balances All foreign currency transactions are recorded, on initial recognition in USD, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. For practical reasons an average rate for a month has been used for all transactions in each foreign currency occurring during the year.

At the end of each reporting period, foreign currency monetary items are translated using the closing rates. Foreign exchange gains and losses arising on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements or on the settlement of monetary items are recognized in profit or loss in the period in which they arise. Ethiopian Airlines Group financial statements are presented in Ethiopian Birr by translating all assets and liabilities at the closing rate at the date of the statement of financial position and all revenue and expenses presented in the statement of profit or loss and other comprehensive income are translated at exchange rates at the dates of the transactions. For practical reasons an average rate for a month has been used for all transactions in each foreign currency occurring during the year. All the resultant exchange differences are recognized in other comprehensive income as per the requirements of lAS 21. E. Property, Plant, and Equipment Recognition and measurement Property, Plant and equipment are measured at cost, net of accumulated depreciation and accumulated impairment losses, if any. Aircraft All aircrafts purchased by Ethiopian Airlines Group shall be considered as capital assets and measured at cost including any conversion expenses. Aircraft Accessories (Rotables) This category of capital assets includes all durable accessories, including but not necessarily limited to engines, propellers, starters, generators. For determination of items falling into this classification of assets, an accessory which can normally be repaired and re-used over the serviceable life of the related type of aircraft shall be considered as durable accessory or rotable spares. 60 Ground Equipment This category of capital asset shall include radio field/passenger, Service/ramp equipment, furniture and fixture and are capitalized if the unit cost of the item plus shipping and other purchasing costs are equivalent to Birr 36,861.38 (USD 1,250) or more. Tools Tools shall be capitalized if the unit cost of the item plus shipping and other purchasing costs is equivalent to Birr 8,846.73 (USD300) or more. Neon Signs Neon Signs shall be capitalized if the unit cost of the item is equivalent to Birr 41,711 (USD1, 500) or more. Computerized Equipment Computerized equipment shall be capitalized if the unit cost of the item plus shipping and other purchasing costs are equivalent to Birr 36,861.38 (USD 1,250) or more. Motorized Vehicles and Equipment This category of capital assets shall include all self-propelled and motorized vehicles and mobile equipment and are capitalized at cost. Capitalization of modification costs Modification expenses on airframes and jet engines will be capitalized if such expenses increase the productivity or extend the serviceable life of the equipment. The detailed are as follows: -

Item Amount to be capitalized

Jet Airframe USD 35,000.00 and over

Turbo Prop Airframe USD 25,000.00 and over

Twin Otter Airframe USD 15,000.00 and over

Jet Engine USD 15,000.00 and over

61 61 Building The construction costs of all buildings are capitalized. Subsequent costs of improvement, modification or extension are capitalized only if it is probable that future economic benefits associated with the item will flow to Ethiopian Airlines Group and the cost of the item is over Birr 589,782.00 (USD 20,000). All other repair and maintenance costs are recognized in the statement of profit or loss as incurred. Depreciation Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognized in profit or loss. Depreciation of an asset begins when it is available for use.

The estimated useful lives of significant items of property, plant and equipment are as follows:

Residual Values Class of assets Service Life- Years (% on cost)

Airframe and Engines Jet 18 10 Turbo Propeller 12 10 Twin Otter 10 10 Light Aircraft 9 10 Simulators 12 - As per the life of the Rotables respective aircraft - Building 35 10 Office furniture and fixture 5 - Computerized equipment 4 - Motorized vehicles and equipment 15 - Ground equipment 5 - Radio, field passenger’s service, hangar, ramp, tools ,equipment and office machines 5 - Neon Signs 5 -

62 F. Property, plant and equipment obtained by donation I. Impairment of non-financial assets Items obtained by donation are recorded based At each reporting date, Ethiopian Airlines on the price estimation or market value received from Group reviews the carrying amount of its non-financial either the donors or manufacturers. These items are assets (other than deferred tax assets) to determine capitalized if they meet the capitalization policy of whether there is any indication of impairment. If any Ethiopian Airlines Group. such indication exists, then the assets recoverable amount is estimated. G. Land For impairment testing, assets are grouped Land is recorded separately from the Building or together into the smallest group of assets runway as non-depreciable asset. The value is determined that generates cash inflows from continuing use that is based on appraisals prepared by external professional largely independent of the cash inflows of other assets valuators. or Cash Generating Units (CGU).

H. Intangible assets When the carrying amount of an asset or Intangible assets are measured on initial CGU exceeds its recoverable amount, the asset recognition at cost only when future economic benefits is considered impaired and is written down to its are probable. Cost includes the purchase price together recoverable amount with any directly attributable expenditure. Following The recoverable amount of an asset or CGU is initial recognition, intangible assets are carried at cost the greater of its value in use and its fair value less costs less any accumulated amortization and accumulated to sale. ‘Value in use’ is based on the estimated future impairment losses, if any. cash flows, discounted to their present value using a pre-tax discount rate that reflects current market In the case of internally developed intangibles, assessments of the time value of money and the risk development expenditure is capitalized if: specific to the asset or CGU. • cost can be measured reliably; • the product is technically and commercially feasible; An impairment loss is recognized if the carrying • Future economic benefits are probable, and amount of an asset or CGU exceeds its recoverable there exists an intent and ability to complete the amount. Impairment losses are recognized in profit development and to use or sell the asset. or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and Other research and development expenditures then reduce the carrying amount of the other asset not meeting the criteria for capitalization in the CGU on a prorate basis. are recognized in the statement of profit or loss as incurred. Intangible assets are amortized on the For other assets an impairment loss is reversed straight-line basis over their estimated useful lives only to the extent that the asset’s carrying amount between 3 and 7 years. does not exceed the carrying amount that would have

63 63 been determined, net of depreciation or amortization Trade Receivables if no impairment loss had been recognized. Trade receivables are classified under amortized cost and initially recognized at fair value and subsequently Impairment assessment has been made for measured at amortized cost using the effective interest aircrafts which are the Ethiopian Airlines Group major method, less provision for impairment. Where there is non-financial assets. All aircrafts have air worthiness objective evidence of amounts that are not collectible, certificate and can operate properly. Furthermore, provision is made for the difference between the the value in use of the aircrafts was tested. carrying amount and the present value of the estimated future cash flows, discounted at the original effective J. Financial assets and financial liabilities interest rate. I. Recognition and Measurement Trade payables Financial assets and liabilities are recognized Trade payables are classified under amortized cost when Ethiopian Airlines Group becomes a party to the and recognized initially at fair value and subsequently contractual provisions of the instrument. measured at amortized cost using effective interest All financial instruments are classified under method. amortized cost and measured initially at fair value plus transactions costs that are directly attributable to its II. De recognition of financial assets and financial acquisition of the respective financial instruments and liabilities subsequently measured at amortized cost. Ethiopian De recognition of financial assets Airlines Group has the following classification of financial A financial asset (or, where applicable a part of assets and liabilities. a financial asset or part of a group of similar financial assets) is derecognized when: long Term loans The right to receive cash flows from the assets has Ethiopian Airlines Group has foreign long term expired, or loans to finance the purchase aircrafts under fixed rate Ethiopian Airlines Group has transferred its rights and floating rate with standard interest rates (such as to receive cash flows from the asset or, has assumed an the benchmark rates of LlBOR plus margin) to be paid obligation to pay them in full without material delay to quarterly. At initial recognition, the loan is measured a third party under a ‘pass-through’ arrangement; and at fair value plus or minus the transactions cost and either subsequently measured at amortized cost discounted a. has transferred substantially all the risks and rewards using effective interest rate. For loans with floating of the asset, or interest rate, interests are compounded quarterly using b. has neither transferred nor retained substantially all the average benchmark rate (LIBOR) for the quarter the risks and rewards of the asset, but has transferred where interest is accrued and paid to the Loan providers. control of the asset. On subsequent measurement, we check if there is any circumstance that changes the effective interest rate When Ethiopian Airlines Group has transferred and re-measure the loans with discounting rate of the its rights to receive cash flows from an asset or has effective interest rate. entered into a pass-through arrangement, and has neither transferred nor retained substantially all the

64 risks and rewards of the asset nor transferred control estimated future cash flows, such as changes in arrears or of the asset, the asset is recognized to the extent of economic conditions that correlate with defaults. Ethiopian Airlines Group continuing involvement in the asset. In that case, Ethiopian Airlines Group also K. Provisions recognizes an associated liability. A Provisions is recognized when there is a present obligation (legal or constructive) as a result of a past The transferred asset and the associated liability event and it is probable that an outflow of resources are measured on a basis that reflects the rights and embodying economic benefits will be required to settle obligations that Ethiopian Airlines Group has retained. the obligation and a reliable estimate can be made of the Continuing involvement that takes the form of a amount of the obligation. guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and L. Income Tax the maximum amount of consideration that Ethiopian Ethiopian Airlines Group is exempt from income Airlines Group could be required to repay. tax in accordance with a decision of the-Council of Derecognition of financial liabilities Ministers. Ethiopian Airlines Group Skylight hotel one A financial liability is derecognized when the of the operating segments is required to pay business contractual obligations are discharged or cancelled or profit tax. expired. When an existing financial liability is replaced by another from the same lender on substantially i. Current income tax different terms, or the terms of an existing liability are The income tax expense of Ethiopian Airlines substantially modified, such an exchange or modification Group Skylight hotel for the year is the tax payable is treated as derecognition of the original liability and on the current year’s taxable income based on the the recognition of a New liability, and the difference in applicable income tax rate in Ethiopian Airlines Group the respective carrying amounts is recognized in profit adjusted by changes in deferred tax assets and liabilities or loss. attributable to temporary differences and to unused III. Impairment of financial assets tax losses The current income tax charge is calculated Ethiopian Airlines Group assesses at each on the basis of the tax laws enacted or substantively reporting date financial asset or a group of financial enacted at the end of the reporting period. assets impairment, which is calculated based on expected loss on the future those loss event has an impact on the ii. Deferred tax estimated future cash flows of the financial asset or Deferred tax is recognized on temporary group of financial assets that can be reliably estimated. differences arising between the tax bases of assets and Evidence of impairment may include indications that liabilities and their carrying amounts in the financial the debtors or a group of debtors are experiencing statements. significant financial difficulty, default or delinquency in Deferred tax is determined using tax rates (and interest or principal payments, the balance aged more laws) that have been enacted or substantively enacted than a year, the probability that they will enter bankruptcy at the balance sheet date and are expected to apply or other financial reorganization and where observable when the related deferred tax asset is realized, or the data indicate that there is a measurable decrease in the deferred tax liability is settled. Deferred tax assets are

65 65 recognized only to the extent that it is probable that and assets are recognized net of the amount of value future taxable profit will be available, against which added taxes except where the value added tax incurred the temporary differences can be utilized. Deferred on purchased assets or services is not recoverable from tax liabilities are generally recognized for all taxable the taxation authority, in which case the value added tax temporary differences. is recognized as part of the cost of the asset or absorbed as an expense. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current The net amount of value added tax recoverable tax assets against current tax liabilities and when the from or payable to the taxation authority is included deferred taxes assets and liabilities relate to income as part of receivables or payables in the statements of taxes levied by the same taxation authority on either the financial position. same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. O. Stock Inventories are held for consumption in the M. Provision for aircraft maintenance process of rendering services and are measured at the Ethiopian Airlines Group operates aircrafts lower of cost and estimated net realizable value based through operating lease and monthly maintenance on market assessment. Cost is determined using the reserve payments are paid based on agreed charges on weighted average method. contractual agreements taking into account block hours, actual flight hours, and cycle to ratio. This amount will cover maintenance cost, which will occur in the future P. Investment in associates due to the current activities. From past trend analysis, Associates are those entities over which the actual maintenance payments for leased aircrafts vary Ethiopian Airlines Group has significant influence when compared with the monthly contractual payments accompanying a shareholding between 20% and 50% when the maintenance is due. Additional provisions of the voting right. Significant influence is the power to are maintained based on the number of hours flown by participate in the financial and operating policy decisions each aircraft/engine and an estimated rate for any short of the investee, but is not control or joint control over fall other than maintenance reserve paid and for those those policies. lease aircrafts without maintenance reserve payments. Investment in associates is accounted for using the Ethiopian Airlines Group record this cost as equity method. Under the equity method, investments maintenance reserve expense on monthly basis based on are initially recognized at cost, and the carrying amount is actual activities of the aircrafts. The long-term portion increased or decreased to recognize the investor’s share of the provision is not discounted to its present value of profit or loss after the date of acquisition. Ethiopian due to uncertainties as the final maintenance costs to be Airlines Group share of its associate’s post acquisition incurred when compared to the estimated rate applied. profits or losses is recognized in the statement of profit or loss. When the Ethiopian Airlines Group share of losses N. Value Added Taxes in an associate exceeds its interest in the associate, the Domestic airfares are exempted while Group does not recognize any further losses. Although international fares are zero-rated. Revenues, expenses Ethiopian Airlines group has 99% share in Ethiopian

66 Mozambique Airlines LTD and has full control, we did The values of unused tickets are recognized as revenue not consolidate in this financial statement as the airline after the expiry date of one-year. Ethiopian airlines is newly established as of December 2018 and will group major Revenues, which is reported in operating evaluate and report in the next financial year. revenues, are:

Q. Cash and cash equivalents Passenger transport Cash comprises cash on hand and cash at banks The Ethiopian Airlines Group sells flight tickets in the current and deposit accounts. Cash equivalents primarily via agents, its own websites, own sales office are short term, highly liquid investments which are easily or other air- lines in the course of interlining. The convertible into cash within three months following the payments are received by the Ethiopian Airlines Group date of the financial statements. via credit card billing companies, agents or other airlines, generally, before the corresponding service is provided. R. Offsetting of financial asset and liabilities Receivables from the sale of flight tickets and related Financial assets and liabilities are offset and ancillary services are only amounts payable by credit the net amount is reported in the statement of card billing companies, agents or other airlines. financial position when and only when there is a legally enforceable right to offset the amount and there is an The Ethiopian Airlines Group initially recognizes intention to settle on a net basis or realize the asset and all ticket sales as liabilities from unused flight documents. settle the liability simultaneously. The legal enforceable These are presented as current liability. Depending on right must not be contingent on future event and must the terms of the selected fare, the contract liabilities be enforceable in the normal course of business and in reflect a range of possibilities for refunding services the event of default, insolvency or bankruptcy. that have not yet been provided. Liabilities include both the deferred income for future flights and ancillary S. Manufacturers credits services that are recognized as revenue when the flight Ethiopian Airlines Group receives credit from documents are used, and the liabilities for award miles manufacturers in connection with the acquisition of credited to the passenger when the flight documents certain aircrafts and engines. Depending on their nature, are used. The Ethiopian airlines Group allocates the these credits are either recorded as a reduction to the transaction price to all of the performance obligations cost of the related aircraft and engines or reduced from identified on the flight ticket based on their individual ongoing operating expenses. transaction prices. The individual transaction prices for flight segments are determined using the IATA T. Revenue procedure. The total price payable is allocated to Revenue from passenger tickets including excess individual flight segments using what is known as a baggage and cargo sales are recognized when the prorate calculation. The individual transaction prices for transportation services is provided. Sales of unutilized ancillary services that are not included in the fare are tickets and airway bills are recognized as a liability directly observable prices. The Ethiopian Airlines Group and shown in the statement of financial position under reduces liabilities from unused flight documents and current liabilities with the heading contract liability. recognizes revenue for each flight when the respective

67 67 U. Non-operating revenue and expenses HOTEL SERVICES i. Revenue from Aircrafts trading The Ethiopian airlines group offers services Aircrafts are ordered in advance as production related to hotels services .The performance obligation takes long time. Before delivery of the respective aircraft, related to this services are provide goods, services, and management may decide either to sale or sale and lease the revenue recognized when the contract obligation back the respective aircraft. Under such circumstance full filed. the difference between the sales price and initial order Frequent flyer program price will be recognized under non-operating revenue. Ethiopian Airlines Group Airlines Group operates a customer loyalty program called Sheba ii. Finance income and costs Miles, the Frequent Flyer Program (FFP). The Fallows Interest income and expenses are recognized on qualifying customers to accumulate mileage credits a time proportion basis using the effective interest that entitle them to a choice of various awards such as method. primarily free travel and upgrading of tickets. There are two steps between the time passengers accumulate iii. Other non-operating revenue their flown miles and the time they are privileged to be Other non-operating revenue is recognized benefited from their accumulated flown miles. when significant risks and rewards of ownership are Step 1 - Earn: This is the process of accumulating flown transferred to the recipient and the amounts of revenue miles which occurs up on purchase of ticket. can be measured reliably. Unclaimed sundry liabilities There is a minimum set up miles for earning over one-year-old are absorbed to non-operating economy and business class in which the number income. of miles required before redeeming benefit iv. Borrowing costs depends from destination to destination. Borrowing costs incurred directly attributable to Step 2- Redeem (spend): This is the process where the acquisition, construction or production of qualifying loyal members start to benefit from their assets, which are assets that necessarily take a substantial accumulated miles. period of time to prepare or acquire for their intended The consideration in respect of the initial sales is use, are added to the costs of those assets until such time allocated to Sheba Mile awards based on the relative that the assets are substantially ready for their intended stand-alone selling price and adjusted for expected use. expiry and the extent to which the demand for an Where funds are borrowed specifically for the award cannot be met. The estimated amount of Sheba purpose of obtaining a qualifying asset, any investment Mile awards is recorded under current liabilities under income earned on temporary surplus fund is deducted the heading unearned transportation. The stand-alone from borrowing costs eligible for capitalization. In the selling price is determined based on the price of the case of general borrowings, a capitalization rate, which benefit we provide to the customers through assessment is the weighted average rate of general borrowing costs, using estimation techniques and taking in to account the is applied to the expenditure on qualifying asset and consideration of various redemption options available included in the cost of the asset. to Sheba Miles. All other borrowing costs are recognized in the statement of profit or loss in the period in which they are incurred

68 those benefits are discounted to determine the present V. Operating leases value and any unrecognized past service costs and the Leases, where significant portion of risks and fair value of any plan asset is deducted. The discount rewards of ownership are retained by the lessor are rate is the current government deposit rate. classified as operating leases. Aircraft lease rental charges, are recognized in the statement of profit or loss on a The calculation is performed annually by straight line basis over the term of the lease. Ethiopian independent qualified actuary using the projected unit Airlines Group has 56 aircrafts under operating lease as credit method. The current service cost of the defined of June 30, 2019. benefit plan, recognized in the statement of profit W. Employee benefits or loss in employee benefit expenses, except where i. Defined Contribution plan included in the cost of an asset, reflects the increase in Defined contribution plan is a pension scheme the defined benefit obligation resulting from employee under which Ethiopian Airlines Group pays fixed service in the current year, benefit changes curtailments contribution. The fund is administered by an independent and settlements. Government Agency and is funded by fixed contributions Past service costs are recognized immediately in from both Ethiopian Airlines Group and the employees. profit or loss and other comprehensive income. Ethiopian Airlines Group has no legal or constructive Actuarial gains or loss arising from experience obligation to pay further contribution if the fund does adjustments and changes in actuarial assumptions are not hold sufficient asset to settle the benefit relating to charged or credited to equity in other comprehensive the employee’s services in the current and prior periods. income in the period in which they arise. Contributions to the pension fund are charged to the statement of profit or loss in the period in which they iii. Short term benefit fall due. Short term employee benefit obligations are measured on an undiscounted basis and are expensed as Ethiopian Airlines Group makes contributions to the related services are rendered by employees. a statutory defined contribution pension scheme. The A liability is recognized for the amount expected employer and the employee make contributions of to be paid and include mainly wages and salaries, bonus, 11% and 7% of the employee’s basic salary respectively, leave benefits and other allowances and incentives as as determined by statutory. For the year ended 30 result of past service provided by the employees, and June 2019 Ethiopian Airlines Group contributed Birr the obligation can be estimated reliably. 297,585,357. (2018-Birr 229,835,634.) which has been charged to the profit or loss account in the period iv. Termination benefits to which they relate. According to the law in the case of unjustified dismissal, employers are obliged to pay to their ii. Defined benefit plan employee’s compensation based on the years of service. Ethiopian Airlines Group net obligation in respect This obligation is computed as per proclamation no of defined benefit plan is calculated by estimating the 377/2003, further amended by proc.NO 494/2006. amount of future benefits that employees have earned in return for their service in the current and prior periods,

69 69 3. Significant accounting estimates, judgments and assumptions The cost of the defined benefits of long service In the preparation of these financial statements awards, severance pay and retirement awards and the a number of estimates, judgments and associated present value of these defined benefit obligations are assumptions have been made relating to the application determined using actuarial valuations. An actuarial of accounting policies and reported amounts of assets valuation involves making various assumptions that liabilities, revenues and expenses. The estimates and may differ from actual developments in the future. associated assumptions are assessed on an ongoing basis These include the determination of the discount rate, and are based on historical experience and other factors future salary increases and mortality rates. Due to the including expectation of future events that are believed complexities involved in the valuation and its long-term to be reasonable under the circumstance. The following nature, a defined benefit obligation is highly sensitive narrative addresses the accounting policies that require to changes in these assumptions. All assumptions are subjective and complex judgment often as a result of the reviewed at each reporting date. need to make estimates. D. Investment in associates

A. Useful lives and residual values of aircraft Judgments made in applying accounting policies and related assets have the most significant effect on the amounts Management assigns useful lives and residual recognized in the combined financial statements and values to aircrafts and related assets based on the the related disclosures. One of these is determination intended use and the economic lives of those assets. of whether there is significant influence over investees. Subsequent changes in circumstances such as Management used the control model under IFRS10 to technological advances or prospective utilization of the determine whether the control indicators set out are assets concerned could result in the actual useful lives or used to define whether there is significant influence residual value to be different from initial estimates in investment under equity partners or control. Management determined that Ethiopian Airlines B. Provision for leased aircraft maintenance Group has significant influence over the associate costs companies.

From past trend analysis, the actual maintenance E. Going concern payments for leased aircrafts vary when compared with the monthly contractual payments when the maintenance Management has assessed the Ethiopian Airlines is due. Management estimate the short fall and maintain Group ability to continue as a going concern and is provision based on the actual flight hour when leased certain that it has the resources to continue in business aircraft operates. Moreover, for those leased aircrafts for the near future. with no contractual maintenance reserve payments, management estimate and maintain provision based on The COVID-19 outbreak has developed rapidly actual flight hours and estimated provision rate. in 2020, with a significant number of infections being recorded globally. Measures taken to contain and C. Defined benefits plans slow the spread of the virus have significantly impacted

70 global economic activity including limiting movements of people and restricting flights. The worldwide aviation market has been significantly disrupted in the short term. This disruption is expected to be followed by a gradual recovery as travel restrictions are lifted. As a global network airline, Ethiopian airlines Group has been unable to viably operate its normal full passenger services. On the other hand the couple of months disruption in global supply chain caused by the closure of factories mainly in China due to the very COVID-19 has caused a sudden and large demand in global air cargo transport. Hence the air cargo business is booming , and it is operating at its peak capacity. as a result of the outbreak, although the full impact and the time period of the disruption is not possible to predict with certainty. Ethiopian Airlines group has taken various measures to maximize cargo revenue by using passenger airplanes for cargo transport either with their seats using the traditional cabin loading or by taking out the seats and loading cargo in the main cabin floor of the aircraft besides the cargo aircrafts. There is also more activities on passenger charter and MRO . Based on measures Ethiopian airlines group has taken, management believes there is no doubt on going concern.

4. Operating Revenue

Birr 2018 Birr Passenger 80,634,372,904 65,674,265,162 Airport charges 969,612,135 1,302,061,692 Freight 17,769,032,811 14,633,436,653 Charter 4,668,117,799 2,471,978,196 Excess baggage 2,351,956,965 1,851,378,196 Customer services – work orders 2,297,937,064 1,569,117,959 Subsidiaries 1,124,241,220 988,907,659 Mail 288,320,952 219,156,480 Commission 757,075,527 471,900,515 Aircraft lease 705,779,785 348,785,268 Hotel services 91,298,294 - Miscellaneous 1,410,383,801 1,375,981,255 113,068,129,257 90,906,968,909

71 71 5. Operating Expenses

Birr 2018 Birr Salaries and related benefits 6, 975, 520, 661 5, 521, 020, 941 Aircraft fuel and oil 39, 440, 318, 856 29, 611, 984, 299 Rentals 11, 288, 754, 059 9, 647, 753, 190 Overflying and navigation 5, 753, 237, 418 4, 838, 539, 663 Depreciation of flying equipment 6, 968, 919, 165 5, 443, 006, 412 Passengers’ expense 4, 432, 444, 578 3, 402, 916, 354 Handling 4, 497, 129, 845 3, 619, 077, 050 Commission and incentive 3, 090, 052, 078 2, 591, 861, 818 Foreign overhauls 4, 339, 449, 866 2, 496, 562, 246 Maintenance of leased aircraft 3, 003, 781, 266 2, 745, 162, 316 Landing and parking 1, 673, 455, 842 1, 665, 685, 610 Central reservation system charge 2, 576, 712, 381 2, 282, 090, 523 Aircraft materials 2, 336, 965, 394 2, 267, 884, 567 Travels 1, 656, 853, 870 1, 179, 400, 882 Service 1, 352, 324, 127 1, 378, 711, 299 Depreciation non-flying equipment 1, 475, 102, 870 1, 067, 561, 295 Insurance 783, 814, 545 583, 415, 440 Communications 556, 297, 219 522, 937, 549 Utilities 49, 542, 918 42, 494, 753 Taxes 115, 389, 523 87, 550, 811 Advertising and publishing 70, 417, 843 49, 760, 385 Training 4, 560, 140 1, 552, 979 Amortization 2, 141, 546, 143 1, 517, 676, 918 Entertainment 3, 234, 660 7, 919, 625 Supplies 270, 194, 664 215, 375, 512 Cost of sales hotel 20, 974, 122 - Other 454, 236, 727 790, 153, 159 Total Sum 105,331,230,778 83,578,055,595

6. Non-Operating Revenue

Itemes Birr 2018 Birr Write back of creators account 727, 455, 507 340, 396, 325 Revenue from purchase inccentive 527, 741, 308 542, 832, 585 Others 1, 447,690, 520 1, 327, 273, 295 2,402,887,336 2,210,502,206

72 7. Non-Operating Expenses

Itemes Birr 2018 Birr Bank Charges (145, 872, 754) (127, 323, 957) Credit card charges (568, 250, 163) (644, 043, 313) Miscellaneous Expenses (279, 275, 619) (25, 728, 387) Total (993,398,536) (797,095,658)

8. Staff Costs

Itemes Birr 2018 Birr Salaries and related benefits 6, 693, 385, 408 5, 300, 292, 320 Pension costs- company contributions 297, 585, 357 220, 728, 620 Total 6,990,970,763 5,521,020,940

73 73 9. Property plant and equipment

Exchange rate var on Balance at Disposals and Balance at Balance at 30 June Beginning balance 30 June 2018 Additions Retirements 30 June 2019 2018 Birr (last year adjustment) (as restated) Birr Birr Birr USD Birr COST OR VALUATION Flight equipment 123,253,602,387 (5,233,517,082) 118, 020, 085, 306 36, 865, 580, 077 (8, 916, 624, 092) 145, 969, 041, 291 Other property 17,532,800,448 856, 038, 655 18, 388, 839, 103 2, 915, 330, 456 (379, 798, 154) 20, 924, 371, 404 land - 33,952,521,074 33, 952, 521, 074 - 33, 952, 521, 074 Engine Maintenance cost 5,048,861,005 (219,712,462) 4, 829, 148, 542 1, 106, 859, 150 - 5, 936, 007, 693 Runways, taxiways & aprons 6,849,259,674 - 6, 849, 259, 674 576, 521, 428 - 7, 425, 781, 102 152,684,523,514 29,355,330,184 182,039,853,698 41,464,291,111 9,296,422,246 214, 207, 722, 563

DEPRICIATION Flight equipment 31,966,143,044 1,933,328,995 33, 899, 472, 039 5, 572, 780, 494 - 39, 472, 252, 534 Other property 4,687,018,902 283,473,346 4, 970, 492, 249 897, 484, 556 (128, 196, 178) 5, 739, 780, 986 Engine Maintenance cost 2,178,136,236 (393,335,393) 1, 784, 800, 843 2, 141, 546, 143 - 3, 926, 346, 986 Runways, taxiways & aprons - - - 380, 359, 334 (155, 102, 498) 225, 256, 836 38,831,298,183 1,823,466,949 40,654,765,131 8,992,170,527 (283,298,675) 49, 363,636, 982

NET BOOK VALUE Flight equipment 91,287,459,343 5,521,113,122 96, 808, 572, 465 - (8, 916, 624, 092) 87, 891, 948, 373 Other property 12,845,781,546 572,565,308 13, 418, 346, 854 520, 313, 721 (251, 601, 976) 13, 687, 058, 598 Engine Maintenance cost 2,870,724,768 173,622,931 3, 044, 375, 699 - - 3, 044, 347, 699 Runways, taxiways & aprons 6,694,157,176 - 6, 694, 157, 176 196, 162, 094 155, 102, 498 7, 045, 421, 768 113,853,225,331 27,531,863,236 141,385,088,567 (9,013,123,570) 164,844,085,581

Work orders in progress 7,058,142,269 97,961,387 7, 156, 103, 656 5, 969, 095, 402 (5, 142, 683, 805) 7, 982, 515, 254 Ex rate variance beg balance 6,322,696,451 (6, 322, 696, 451) - - 120,911,367,601 33,952,521,074 154,863,888,675 5,969,095,402 (14,155,807,375) 172,826,600,835

N.B Four B 737 Max with a book value of birr 5,669,557,088 is included in PPE while aircrafts are grounded due to ET 302 accident. Boeing commercial is working to fix the problem and management believe all grounded aircrafts will be back to the operation

74 9. Property plant and equipment

Exchange rate var on Balance at Disposals and Balance at Balance at 30 June Beginning balance 30 June 2018 Additions Retirements 30 June 2019 2018 Birr (last year adjustment) (as restated) Birr Birr Birr USD Birr COST OR VALUATION Flight equipment 123,253,602,387 (5,233,517,082) 118, 020, 085, 306 36, 865, 580, 077 (8, 916, 624, 092) 145, 969, 041, 291 Other property 17,532,800,448 856, 038, 655 18, 388, 839, 103 2, 915, 330, 456 (379, 798, 154) 20, 924, 371, 404 land - 33,952,521,074 33, 952, 521, 074 - 33, 952, 521, 074 Engine Maintenance cost 5,048,861,005 (219,712,462) 4, 829, 148, 542 1, 106, 859, 150 - 5, 936, 007, 693 Runways, taxiways & aprons 6,849,259,674 - 6, 849, 259, 674 576, 521, 428 - 7, 425, 781, 102 152,684,523,514 29,355,330,184 182,039,853,698 41,464,291,111 9,296,422,246 214, 207, 722, 563

DEPRICIATION Flight equipment 31,966,143,044 1,933,328,995 33, 899, 472, 039 5, 572, 780, 494 - 39, 472, 252, 534 Other property 4,687,018,902 283,473,346 4, 970, 492, 249 897, 484, 556 (128, 196, 178) 5, 739, 780, 986 Engine Maintenance cost 2,178,136,236 (393,335,393) 1, 784, 800, 843 2, 141, 546, 143 - 3, 926, 346, 986 Runways, taxiways & aprons - - - 380, 359, 334 (155, 102, 498) 225, 256, 836 38,831,298,183 1,823,466,949 40,654,765,131 8,992,170,527 (283,298,675) 49, 363,636, 982

NET BOOK VALUE Flight equipment 91,287,459,343 5,521,113,122 96, 808, 572, 465 - (8, 916, 624, 092) 87, 891, 948, 373 Other property 12,845,781,546 572,565,308 13, 418, 346, 854 520, 313, 721 (251, 601, 976) 13, 687, 058, 598 Engine Maintenance cost 2,870,724,768 173,622,931 3, 044, 375, 699 - - 3, 044, 347, 699 Runways, taxiways & aprons 6,694,157,176 - 6, 694, 157, 176 196, 162, 094 155, 102, 498 7, 045, 421, 768 113,853,225,331 27,531,863,236 141,385,088,567 (9,013,123,570) 164,844,085,581

Work orders in progress 7,058,142,269 97,961,387 7, 156, 103, 656 5, 969, 095, 402 (5, 142, 683, 805) 7, 982, 515, 254 Ex rate variance beg balance 6,322,696,451 (6, 322, 696, 451) - - 120,911,367,601 33,952,521,074 154,863,888,675 5,969,095,402 (14,155,807,375) 172,826,600,835

N.B Four B 737 Max with a book value of birr 5,669,557,088 is included in PPE while aircrafts are grounded due to ET 302 accident. Boeing commercial is working to fix the problem and management believe all grounded aircrafts will be back to the operation

75 75 10. Intangible assets

Balance at Balance at 30 June 2018 Additions 30 June 2019 Birr Birr Birr Cost

Software costs 585, 618, 707 38, 029, 507 623, 648, 214

Amortization (394,966,565) (50,401,293) (445,367,858)

Net book value 190,652,142 178, 280, 356

11. Investment in associates

Birr 2018 Birr ASKY Airlines (900, 000 shares of US dollars 20 each par value) 530, 803, 800 500, 531, 400 Malawi Airlines (490, 000 shares of USdollars 20 each par value) 288, 993, 180 272, 511, 540 Investment in Chad Airlines 113, 238, 144 Ethiopian Mozambique Airlines LTD (99% of share) 353, 869, 200 DHL- ET logistics service investment (5,355.00) shares of Ethiopian Birr 1000 each par value) 5, 523, 836 Other foreign investments 19, 876,785 18,743,187 Share of loss from investment (819,796,980) (760,784,582) 492,507,965 31,001,545

12. Treasury Bonds These are treasury bonds purchased from Industry Trade Bank in Angola in AOA currency bearing interest 7% at market rate semi-annually. It will mature between11 July 2020 to 4 December 2020.

13. Standing Deposits These are deposits for security, aircraft lease, hotel, hospital and similar purposes. It also includes pre- delivery advances for aircraft purchase.

14. Other Loan Receivables This represents loan given to employees for housing construction at interest rate of 9.5%. The carrying amount of the loan was discounted at effective interest rate of 16% and shown at fair value. The difference between the carrying amount and the discounted amount was accounted as prepaid employee benefit under trade and other receivables. This amount will be amortized annually and charged to profit or loss when employees provide service.

76 15. Stock

Birr 2018 Birr

Aircraft parts 4, 327, 357, 521 3, 486, 679, 661 Supplies stock-customer Work orders 10, 366, 342 9, 325, 733 Stock of stationery and Other materials 999, 679, 491 1, 006, 688, 178 5, 337, 403, 353 4, 502, 693, 572 Less: provision for stock obsolescence (726,336,307) (432,952,953) (4,611,067,046) 4,069,740,619

16. Trade and other receivables

Birr 2018 Birr

Transportation-others 5, 013, 863, 825 3, 927, 511, 545 Airport service charges 852,929, 888 3, 803, 803, 973 Debtors 63, 384, 605 - Deposits and prepayments 6, 539, 113, 942 2, 991, 832, 093 Transportations-Airlines 4, 278, 530, 870 3, 801, 012, 510 Claims from aircraft lessor 545, 588, 167 104, 296, 897 Ethiopian Government 89, 288, 412 311, 368, 031 Value added tax and duties recoverable 1, 097, 327, 567 1, 144, 564, 666 Airmail 24, 822, 778 30, 495, 988 Miscellaneous 7, 380, 700, 048 3, 763, 328, 867 25,885,550,104 19,878,214,570 Less: provision for doubtful debts (2,160,551,322) (2,323,956,528) 23,724,998,782 (17,554,258,048)

17. Short term investment

Birr 2018 Birr

Short term deposits 2, 211, 682, 500 217, 567, 647 2,211,682,500 217,567,647

18. Cash and cash equivalent

77 77 Birr 2018 Birr Cash with foreign banks 9, 850, 851, 001 13, 603, 815, 486 Less: provision for accounts, difficult to transfer (3,205,059) (3,022,271) 9, 847, 645, 942 13, 600, 793, 215 Cash with local banks 934, 188, 501 2, 126, 922, 050 Cash on hand 52, 980, 951 94, 547, 543 10,834,815,393 15,822,262,808

19. Capital

Ethiopian Airlines Group is wholly owned by the Government of the Federal Democratic Republic of Ethiopia. There are no shares and no par value. Ethiopian airlines Group is authorized by the Council of Ministers to transfer the net profits to paid up capital.

20. Long term loans

Birr 2018 Birr

Balance at 30 June 2018 80, 308, 502, 667 151, 207, 630, 610 Additional loans 27, 568, 539, 716 36, 960, 311, 088 Foreign exchange fluctuation -8,611,190,878 715,418,928 99, 265, 851, 505 88, 883, 360, 626 Less: Repayments 10,024,087,606 8,574,857,960 89,241,763,899 80,308,502,667 Less: Amount repayable within 11,949,523,448 8,448,149,533 77,292,240,450 71,860,353,133

Loans from foreign lending institutions, secured on aircraft, bearing interest at rates of between 1.50% and 7.31% per annum, and repayable in quarterly instalments. Secured and unsecured loans from local and foreign lending institutions and development agencies, bearing interest at rates of between 2.38% and 4.66% per annum, and repayable in, mainly, quarterly instalments.

21. Provision for maintenance

Birr 2018 Birr

Balance at 30 June 2018 346, 017, 710 72, 177, 297 Additional provision 546, 140, 531 292, 028, 740 Reduction arising from actual costs (12, 451, 866) (18, 188, 327) 879,706,375 346,017,710

The provision for maintenance is made to match aircraft maintenance costs with the generated revenues.

78 22. Employee Benefit Obligation

Ethiopian Airlines Group operates an unfunded lump sum Gratuity Arrangement (lithe Arrangement”). As the Arrangement is unfunded, gratuity benefits are paid out of the Ethiopian Airlines Group general revenues. The following arrangement benefits were valued:

A. Severance pay

Severance benefits are based on the statutory severance benefit as set out in labour Proclamation No. 377/2003 Article No. 39 and 40 as amended by labour proclamation No 494/2006 Article NO.2. This benefit is implemented for those employees who have a service period of a minimum of 5 years. Severance pay is calculated as the employee’s one month’s salary for the first year of service and 1/3 (one third) of the employee’s salary for every additional year of service. This benefit is paid on withdrawal, death and ill health retirement from the Company. Employees who are over 55 years and have a past service of more than 25 years are not entitled to this benefit. In addition, this benefit is not paid on retirement from the company. B. Service Award Service anniversary (years) Amount Birr Long service award benefits are payable to employees only on completion of specified 2oth 4,000 anniversaries of service as follows: 25th 7,000 30th 10,000 35th 13,000 40th 15,000

C. Retirement Award Retirement benefit awards are payable to employees on retirement from the Ethiopian Airlines Group . The retirement benefit is Birr 6,000 plus Birr 500 for every year above 20 Years of service. i. Reconciliation of benefit obligation

2019 2018

Opening benefit obligation 205, 955, 912 160, 019, 964 Current service cost( employer) 38, 957, 843 16, 821, 072 Interest cost 15, 174, 792 12, 065, 341 Employee contributions Actuarial (gain)/loss –due to experi 31, 143, 615 26, 007, 572 Actuarial gain loss- due to Changes in assumptions Past service cost 71, 767, 567 Benefits paid (17, 304, 169) (8, 958, 037) Insurance premiums Curtailments Settlements Closing benefit obligation 345,695,560 205,955,912

79 79 ii. Defined benefit obligation (asset) Recognized in the balance sheet

2019 2018 Present value of funded obligations 345, 695, 560 205, 955, 912 Fair value of scheme assets Net underfunding in funded plan 345, 695, 560 205, 955, 912 Defined benefit obligation ( asset) reco 345,695,560 205,955,912

iii. Amount recognized in profit or loss

2019 2018 Service cost Current service cost( employee) 38, 957, 843 16, 821, 072 Past Service Cost Loss and gain on curtailment and settlements Total Service Cost 38, 957, 843 16, 821, 072 Interest Cost Interest cost on defined benefit Obligation 15, 174, 792 12, 065, 341 Interest income on plan assets Recognition of past service medical cost 71, 767, 567 Net interest cost n balance sheet Liability 86, 942, 359 12, 886, 413 Total included in and loss in Respect of Scheme 125,900,202 28,886,413 iv. Amount recognized in OCI

2019 2018 Change in unrecognized positions Actuarial (gain loss –obligation 31, 143, 615 26, 007, 572 Return on plan assets (excluding amount in interest cost) Change in effect of assets ceiling (excluding amount recognized in OCI Statement for the fiscal year 31,143,615 26,007,572 These will not be reclassified subsequently to profit or loss

80 v. Reconciliation

Scenar- Scenario-2 Scenario-3 Scenario-4 Scenario-5 io-1 base Discount rate salary rate Discount rate salary rate increased by 1% increased decr by 1% decr by 1% by 1% Discount rate 7.00% 8.00% 7.00% 6.00% 7.00% Salary increases 6 6.00% 6.00% 7.00% 6.00% 5.00% Net liability at start of period 205,955,912 205,955,912 205,955,912 205,955,912 205,955,912 Total net expense recognised in the statement of profit or Loss 125,900,202 117,362,985 125,900,202 136699672 125,900,202 Net expense recognised in the other comprehensive income 31,143,615 11,750,080 50,258,224 53,584,566 14,345,447 Employer contributions -17,304,169 -17,304,169 -17,304,169 -17,304,169 -17,304,169 Net liability at end of period 345,695,560 317,794,808 364,810,169 348,935,981 328,897,392

2019 2018

Net liability at start of period 205, 955, 912 160, 019, 964 Net expense recognized in the income statement 125, 900, 202 28, 886, 413 Employer contributions (17, 304, 169) (8, 958, 037) Amount recognized in OCI 31, 143, 615 26, 007, 572 Net liability at end of period 345,695,560 205,955,912

vi. Actuarial Assumptions

2019 2018 Discount rate( % p.a) 7% 7.00% Features salary increases ( % p.a) 6% 6.00% Morality Assumptions – males A1949-52males A1949-52 males Morality Assumptions – females A1949- 52 females A1949-52 females Weighted average durations of defined Benefit obligation 8%

Ethiopian Airlines Group also make statutory contributions to the national social security fund. Contributions are determined by the local statute and are shared between the employer and employee. For the year, ended 30 June 2019 the company contributed birr 297,585,357 (2018 birr 228,840,828).

81 81 vii. Sensitivity analysis:

The results of the actuarial valuation will be more sensitive to changes in the financial assumptions than changes in the demographic assumptions. In preparing the sensitivity analysis of the results to the discount rate used, we have relied on calculations of the duration of the liability.

Based on this methodology the results of the sensitivity analysis are summarized in the below table Since, the majority of benefits payable under the arrangements are salary related, the sensitivity of the liability to a change in the salary escalation assumptions is not expected to be materially different. viii. Expected impact on future cash flow

The current arrangements are unfunded with no pre-determined contributions. The Ethiopian Airlines Group however meets benefits payments on a pay-as-you-go basis. The company benefit outgo was birr 17,304,169 (2018 birr 8,958,037)

23. Deferred Tax Liability For sky light hotel, one of Ethiopian airlines group segment deferred tax is calculated on all temporary differences under the liability method using the enacted rate, currently at 30%. The deferred tax Liability at the end of the year is attributable to the difference between the tax basis of property, plant and equipment and its carrying value for financial reporting purposes. as per the proclamation Ethiopian airport one of the Ethiopian airlines group segment tax exempted ,the deferred tax liability amount which is reported on the previous year’s as liability the balance absorbed and transferred to the equity .

24. Deferred and Non-Current Liabilities

Birr 2018 Birr

Management fee 36, 273, 984 48, 308, 338 36, 273, 984 48, 308, 338 Non- current liabilities Security deposit 208, 230, 771 91, 810, 181 Foreign terminations indemnity 1, 129, 545 1, 494, 656 Rotations payable 33, 499, 695 27, 262, 667 Leased Aircraft maintenance reser 226, 760, 707 225, 652, 906 Miscellaneous 275, 631, 565 501, 900, 669 745, 252, 282 848, 121, 078 781,526,265 896,429,415

82 25. Trade and other liabilities

Birr 2018 Birr

Transportation tax and embarkation fees 2, 437, 288, 806 2, 121, 461, 612 Payable to oil companies 69, 542, 580 44, 985, 428 Goods received but not billed 688, 217, 055 188, 323, 490 Customers’ advances for work order 161, 882, 247 166, 161, 201 Accruals interest 50, 099, 091 438, 430, 079 Accruals for leasing and maintenance of aircraft 58, 678, 366 66, 274, 751 Pool apportionment with other airlines 76, 671, 660 150, 796, 977 Services received but not billed 5, 933, 339, 185 6, 064, 706, 114 Others 4, 717, 994, 218 3, 024, 340,718 14,193,713,209 12,265,480,371

26. Taxation Ethiopian airlines group exempted from tax but one of the segment SKY light hotel are not exempted.

27. State Dividend The Ministry of Finance in its letter of 10 January 2019 authorized Ethiopian Airlines Group to settle the dividend in the months of July 2019.

28. CASH flows Increases and decreases in the balance sheet items without actual movement of cash are not considered in the cash flow statement. These are as follows: -

An increase in property, plant and equipment financed by loan------27,228,555,450

29. Adjustment in changes in owners’ equity

Land value of Ethiopian airport associated with its acquisition by Ethiopian airlines of ETB 33,952,521,074.00 which was omitted and not included in the previous year financial statement is now included and previous year balance of Property , plant and Equipment and Change in Equity are re-stated.

Segment Information

Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision Maker. The Chief operating decision maker is considered to be the executive management members of Ethiopian Airlines Group who make strategic decisions and are responsible for allocating resources and assessing the performance of the operating segments. The operating segments of Ethiopian Airlines Group are

83 83 defined based on IFRS8, considering the 10% threshold of segment revenue, total assets and profits of the year. Ethiopian Airlines Group Chief Executive Officer monitors the operating results of the business units for making decisions about resource allocation and performance assessment. Ethiopian Airlines Group has three reportable segments: Ethiopian Airlines, Ethiopian Airports and SKY light hotel. Ethiopian Airlines provides commercial air transportation including passenger, and cargo services, Ethiopian Airports provides airport services and SKY light hotel provide hotel services.

The performance of the business units is evaluated based on segment profit or loss and is measured consistently based on the profit of the year as shown in the combined financial statements. Intersegment revenues and expenses and assets and liabilities were eliminated upon combination.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. Ethiopian Airlines Group accounts for intersegment sales and transfers as if the sales or transfers were to a third party, which is at current market prices.

Ethiopian Ethiopian Skylight Inter segment Ethiopian Airlines Airports Hotel Transaction Airlines group Birr Birr Birr Birr Birr

Total segment Revenue 112,779,383,284 2, 605, 409, 004 92, 619, 288 1,409,282,319 113, 068,129, 257 Revenue from external customers 111,779,383,284 1, 235, 629, 807 53, 116, 165 113,068,129,257 Segment profit before tax 5, 411,064,960 1, 463, 506, 146 (44, 521, 987) 6, 830,049,119 Finance income 130,227,232 13, 586, 222 - 143,813,454 Finance cost (2,590,784,827) - - 2,590,784,827 Income tax Depreciation and amortizations 9,916,476,929 603, 152, 801 65, 938, 448 10,585,568,178 Segment Net asset 50,627,181,924 50,696,712,748 44,521,988 1,096,938,785 100,182,433,900

30. Financial Risk management objectives and policies A. Introduction As Ethiopian Airlines Group carries out its activities in an extremely dynamic and highly volatile commercial environment, both opportunities and risks are encountered as part of everyday business. Ethiopian Airlines Group ability to identify, control and manage risks at the early stage and to pinpoint and exploit opportunities is vital to its ability to effectively realize the corporate vision. Accordingly, the Financial risk management section under Treasury is responsible to assess, identify, measure and mitigate the important financial risk exposures of the Ethiopian Airlines Group. Ethiopian Airlines Group is exposed to various financial risks arising from its underlying operations and

84 financial activities. It is primarily exposed to liquidity risk, market risk (i.e. fuel price, interest rate and currency risks) and credit risk.

Volatility and fluctuations in the market conditions exposes Ethiopian Airlines Group to various financial risks and management gives a strong emphasis on the importance of financial risk management as an element of control. The policy and aim is therefore to reduce the negative impact of such risks on cash flow, financial performance and equity.

This note is intended to present information about Ethiopian Airlines Group exposure to each of the above risks, its objectives, policies and processes for measuring and managing risks.

B. Ethiopian Airlines Group Airlines Group’s risk management framework A continuous dialogue between the Management, Risk management team under Treasury department, Enterprise Risk Management team and the Audit Committee is maintained in order to assure its effectiveness in this area. The Risk Management section of Treasury department deals with financial risk analysis and report to the Enterprise Risk management through which the report goes to higher Management for the decision making. The risk management system is governed by the Risk Assessment Guideline defining the structure and the process of risk assessments. financial instruments. Financial risk management of Ethiopian Airlines Group is governed by policies and guidelines approved In accordance with its financial risk policies, by the senior management. These policies and guidelines Ethiopian Airlines Group manages its market risk cover interest rate risk, currency risk, credit risk and exposures through the use of financial instruments liquidity risk. Its policies and guidelines also cover when it is appropriate. This is applied by entering into areas such as cash management, investment of excess derivative transactions with the intention to reduce funds and the raising of short and long-term debt. exposure to price risk by shifting that risk to companies Compliance with the policies and guidelines is managed that have opposite risk profiles or to investors who by segregated functions within Ethiopian Airlines are willing to accept the risk in exchange for profit Group. The objective of financial risk management is to opportunity. minimize or reduce the negative impact of such risks on its results, cash flow, financial performance and equity. I. Currency risk and its management Currency risk is a financial risk that exists when a C. Market Risk and its management financial transaction is denominated in a currency other Market risk is the possibility of experiencing losses than that of the base currency of Ethiopian Airlines due to factors that affect the overall performance of the Group and it is the risk that the fair value or the future financial markets in which Ethiopian Airlines Group is cash flows of a financial instrument will fluctuate because operating. It is the risk that arise as market prices change of changes in foreign exchange rates. due to the change in Interest rates, Jet fuel prices and To mitigate the foreign currency risk exposure, foreign exchange rates and which will affect Ethiopian Treasury department under its Risk management team Airlines Group income or the value of its holdings of closely review and monitor exchange rate trends. Having

85 85 those currencies with high volatility and devaluation risk (3.73%), INR (3.59%), XOF (3.02%), NGN on its watch lists, the team is responsible to assess the (2.45%), AED (2.20%) and GBP (2.11%). The ETB impact of currency fluctuation on Sales and transfers. inflows are fully utilized for local expenditures even at times requiring foreign currency inflows to meet local Natural hedging is used as the most common and commitments in ETB. primary hedging mechanism by the Ethiopian Airlines Group. Procedurally all local commitments including Other currencies with small proportion to revenue major direct operating costs such as fuel, landing, and but with devaluation risk and where no derivative handling will be settled in local currency in which the instruments are available in the market, fixed income revenue inflows are received. instruments such as dollar indexed bonds are used for hedging. The Risk Management Team closely monitors Onshore derivatives such as, outright forward economic changes and forecasts in Ethiopian Airlines purchase and money market instruments are used to Group markets (the market for which Ethiopian Airlines hedge and mitigate the exchange rate risk of major Group operates in) to identify and mitigate exchange currency with volatility and repatriation risk. rate and repatriation risks in a proactive manner. Country risk ratings are profiled and those markets with The team also study some other hedging structures speculative grade ratings are further scrutinized by the available in the market for those currencies which team. Macro-economic data are collected and analysed Ethiopian Airlines Group is exposed and recommend to to identify and mitigate devaluation and repatriation top management for implementation of the exchange risk. rate hedging. II. Interest rate risk and its management As major commitments such as loan repayments Interest rate risk is the risk that the value of are mostly in United States Dollar (USD) and the a financial instrument will be affected by changes in concentration account is maintained in USD, the market interest rates. Ethiopian Airlines Group market currency risk is assessed in terms of convertibility and risk due to changes in interest rates primarily relates to volatility against USD. Major currencies in Ethiopian its cash deposits and borrowings. Airlines Group revenue stream such as Yuan (CNY), Euro (EUR), Hong Kong Dollar (HKD) and Indian Most of Ethiopian Airlines Group debts are asset Rupee (INR) are relatively stable and easily convertible. backed, which reveals the capital intensive nature of the As XAF/XOF (CFA Franc) is pegged with EUR it is Airline Industry. It has a mix of both fixed rate interest largely stable and only moves as EUR moves against loans and variable or floating rate interest loans. dollar, repatriation risks are also minimum. 93% of the loans are USD denominated at LIBOR benchmarked rates. The Risk Management Team under The revenue inflows are coming through 94 Treasury closely monitors the interest rate movements currencies of which 82.16% of the revenue originates on the world market and keeps a balance between fixed from eleven currencies namely USD (24.86%), CNY and floating interest rate loans. As of 30 June 2019 (12.64%), ETB (Ethiopian Airlines Group Birr) about 72% of the loans of Ethiopian Airlines Group (11.57%), EUR (10.66%), HKD (5.37%), XAF are at fixed rate at weighted average rate of 3.68% p.a.

86 Closely monitoring the movement of interest rate will hedging practice of close competitors is also being continue and swaps could also be considered if the rate monitored as airlines business does not allow automatic is declining further. price adjustment in case of sudden fall of oil prices below the hedged amount. Financial risk management section conducts interest rate risk sensitivity analysis based on the Financial risk management section conducts Jet assumption that interest rate fluctuation will affect the fuel price risk sensitivity analysis based on the assumption floating portion of the loan. Under these assumptions, that all other factors, such as fuel surcharge and uplift the effect of increase in LIBOR rate (at various volume remain constants. Under these assumptions, scenarios) and its sensitivity on statement of profit or the effect of increase in crude oil prices (at various loss and equity is being assessed to control and monitor scenarios) and its sensitivity on statement of profit or the impact. loss and equity is being assessed to control and monitor the impact. III. Fuel price risk and its management Ethiopian Airlines Group is exposed to jet fuel D. Liquidity Risk and its management price risk to the extent that there are significant changes in the prices of jet fuel. Jet Fuel price risk is the risk Liquidity risk is the risk that Ethiopian Airlines of loss to the Group arising from adverse fluctuations Group will be unable to meet its financial obligations in fuel prices. Treasury Department will review price or liabilities when they fall due and to replace funds trends, forecasts & hedging structures available in when they are withdrawn. Ethiopian Airlines Group the market and recommend to top management for approach to managing liquidity risk is to make sure that implementation of hedging. it will have sufficient liquidity to meet its liabilities when they fall due without incurring unacceptable losses or Ethiopian Airlines Group policy currently allows risking damage to its reputation. to hedge fuel price, up to the maximum of 75% of its Financial Risk Management section of Treasury annual fuel volume uplift requirements at any time for a department carries out Cash flow forecasts at various maximum period of one year. However, if conditions are planned profit scenarios on monthly basis, monitors believed to be extremely favourable to hedge fuel prices rolling forecasts of Ethiopian Airlines Group and assess for more than one year, proper management approval is liquidity requirements to ensure it has sufficient cash required. to meet its operational needs while maintaining excess amount, so that Ethiopian Airlines Group do not default on any of its borrowing facilities. All hedging instruments are open for consideration. Currently, due to high volatility of oil E. Credit risk and its management prices, with much uncertainty on the oil price direction, Credit risk is the risk that one party to a financial lack of clear long-term prediction and uncertainty over instrument will fail to discharge an obligation and cause technical adjustment to oil supplies, the Ethiopian the other party to incur a financial loss. The credit Airlines Group has not hedged any volume. However, risk exposure of Ethiopian Airlines Group primarily the oil future prices are being monitored closely and emanates from travel agents; both International Air

87 87 Transport Association (IATA) approved Sales agents Birr39,161,524,800 for the purchase of 14 aircrafts. and non-IATA agents through which its major sales are Out of which Birr 27,365,884,800 is with the possibility conducted. of sale and lease back arrangement. Furthermore, there are additional commitment of Birr 138,902,090.00 the The default risk of IATA Billing Settlement remaining cost for the construction of phase II Ethiopian Plan (BSP) agents is managed by IATA through local Airlines Group Skylight Hotel. The commitments will financial criteria which are gauged by the sales volume be financed through long term Loan and partially of the agent. Ethiopian Airlines Group as participating through equity. airline involves in the process of evaluation and decision making of each local financial criterion. Adherence to 32. Contingent Liabilities the financial criteria is monitored on an on-going basis Ethiopian Airlines Group has contingent liabilities, by IATA through the Association’s Agency Program. not provided for in these financial statements of Birr 378,325,004. in respect of legal actions brought by A financial security is mandatory to be activated different organizations and individuals, which are being on IATA BSP link platform where the agents are contested by Ethiopian Airlines Group. It is not possible authorized to sell airline tickets. The financial security to determine the outcome of these cases. is held in the form of bank guarantee, letter of credit or insurance guarantee calculated based on the agent’s 33. Employees sales volume. All new agents are required to have a The Ethiopian Airlines Group employed 13,953 security of USD 50,000. The credit risk associated with staff at 30 June 2019 (2018- 13,792). these sales agents is relatively low. Ethiopian Airlines Group receivables are generated largely from the sales 34. Subsequent Events of passenger tickets and cargo transportation services. Ethiopian Airlines Group has continued to Majority of these sales are in accounts receivable which form equity partnership with other airlines by way of are generally short term in duration in terms of collection investment in different African countries and has formed period and the risk associated with these receivables is the following airlines before issuance date of this report. minimal. • Zambia airways with 45 % shareholding starting from July 2019 For non- IATA agents which are connected to the airline’s stock directly, the same methodology is used 35. Related parties where they will be required to provide an irrevocable A. Remuneration of key management bank guarantee or security deposit in line with the personnel volume of their sales and remittance period. Similarly, Key management members received the following corporate customers are also required to present their remuneration during the years ended 30 June 2019 and financial statements and bank guarantee to have a credit 2018 facility from Ethiopian Airlines Group. 2019 (Birr) 2018 (Birr) 31. Commitments Ethiopian Airlines Group has commitments, Short term benefit 26,555,375 19,200,131 not provided for in these financial statements of

88 Compensation of key management personnel in the names of the entities and either the assets or the includes salaries, housing allowances, fuel allowance, entities themselves serve as collateral for loans. No representation allowance and bonus. These amounts are other material transactions have been carried out by also included in operating expenses. the entities and all transactions are recognized in these financial statements. B. Other related parties As of the reporting date, Ethiopian Airlines Group has investment of 24% shareholding in African 37. Date of Authorization sky (ASKY) based in Lomé Togo, 49% shareholding The Chief Executive Officer of Ethiopian Airlines in Malawi Airlines based in Lilongwe Malawi,49% Group authorized the issue of these financial Statements shareholding Tchadia airlines ,99% shareholding on 25 June 2020. Ethiopian Mozambique Airlines LTD, and 51% Shareholding DHL-ET Logistics Services.

Outstanding balances at the year-end are interest free and settlements are to be made in cash. For the year-ended 30 June 2019, Ethiopian Airlines Group has not maintained any provision for doubtful debts relating to amounts owed by ASKY, Malawi airlines , Tchadia, Ethiopian Mozambique Airlines LTD and DHL-ET Logistics service Assessment is undertaken at the end of each reporting date through examining the financial position of the related parties and the market in which the related parties operate.

As at 30 June 2019, Ethiopian Airlines Group has due from ASKY Airlines Birr 326,621,309 and Ethiopian Airlines Group has due from Malawi Airlines Birr 154,553,731 Ethiopian Airlines Group has due from Tchadia airlines Birr 56,131,513 due from Ethiopian Mozambique Airlines LTD Birr 100,597,240 and due from DHL-ET logistics service Birr 900,129.

36. Special purpose entities Ethiopian Airlines Group has established special purpose entities for the purpose of selling and leasing back aircraft and accessories. Those latter are registered

89 89 ENCHANTING ETHIOPIA THE LAND OF TIMELESS APPEAL

90 91 91 ROUTE MAPS

More than 127 International Destinations in Five Continents More than 127 International Destinations in Five Continents Domestic More than 62 Destinations in Africa

Cairo

Khartoum Dakar Asmara Bamako Niamey Kano Djibouti Ouagadougou N'Djamena Abuja Hargeisa Conakry Lagos Lomé Enugu Abidjan Accra Cotonou Douala Juba Addis Ababa Malabo yaoundé Libreville Kisangani Entebbe Mogadishu Goma Nairobi Brazzaville Bujumbura Kigali Pointe-Noire Kinshasa Kilimanjaro Mombasa Zanzibar Seychelles Luanda Lubumbashi Dares Salaam Moroni Ndola Lilongwe Nosy-be Lusaka Blantyre Harare Victoria Falls Beira Antananarivo Windhoek Gaborone Maputo Johannesburg

Cape Town